October 16, 2019

Despite the short-term trend in the Nasdaq turning up last Friday, this week's action in the growth sector has been lacking. Led by a couple of the sector's standard bearers - Shopify (SHOP) and Coupa Software (COUP) - the selling was broad on Wednesday.

A couple of growth indices, the IBD 50 (FFTY) and the Invesco Dynamic Software ETF, showed sharp underperformance over the past two sessions.

This occurred as COUP, the first growth issue to break out in recent sessions, succumbed to two major distribution days.

As well, SHOP, the premier liquid glamour and valued for its indication of the speculative sentiment among institutions, was down substantially Wednesday after stalling at the 50-day.

It is never a good idea to look at only one or two issues in isolation and then make a conclusion about the speculative sentiment. The companies may have their own internal issues that have nothing to do with the growth sector at large.

In this case, besides the faltering FFTY and PSJ indices, a number of other former leading growth stocks came off meaningfully Wednesday, confirming the message of COUP and SHOP: Alteryx (AYX), -7.6%; MongoDB (MDB), -8.7%; ServiceNow (NOW), -6.5%; Okta (OKTA), -7.4%; and Workday (WDAY), -12.1%. All were on heavy volume.

In addition, just two of the 18 names on our Watch List rose on Wednesday.

In light of the above, the game plan changes from "one or two pilot buys are okay" to "a full cash position is in order." This in light of the fact that we have yet to see any real progress from recent breakouts.

Despite the above caution, the following names are for very aggressive speculators who seek to put money to work. The fact that there are only four of these issues speaks to the general market's  health, or lack thereof.

Cardlytics (CDLX) is a leading computer software – enterprise name that did not break down during the late-summer correction in growth glamours. Losses are expected this year and next, while revenue increased 10% and 37% in the two recent quarters. The stock holds a B- acc/dis rating.

Price forms a five-week flat base with a 20% depth. It is buyable above the pattern high of 39.62. Earnings expected Nov. 7 (unconfirmed).

Chipotle Mexican Grill (CMG) is forecast by Wall Street to notch earnings growth of 51%/30% in ‘19/’20. Sales grew 14% and 13% in the two recent quarters. A 97 RS stock in a 73 RS group with a B acc/dis rating.

The stock forms a five-week flat base with a tight 9% depth. It can be taken above the 857.90 pattern high. Earnings expected Oct. 22 (confirmed).

Liveperson (LPSN) has had a checkered past in terms of earnings growth, with losses expected this year and next. Sales growth has been 14% and 15% in the two recent quarters. A 98 RS stock in an 85 RS group with a B- acc/dis rating.

The stock forms a seven-week double-bottom base. It can be taken above the 41.00 pattern high. Earnings expected Nov. 7 (unconfirmed).

Model N (MODN) is a computer software – enterprise issue with an expected earnings growth rate of 56% in the September ’20 fiscal year. Sales growth has declined in the last three quarters. The stock holds an A- acc/dis rating.

Price forms a six-week flat base with an 8% depth. This is considered tight, and attractive. The stock can be taken above the 29.26 pattern high. Earnings expected Nov. 5 (confirmed).

In sum, cash is king for all but the most aggressive speculators.

Q&A

Q: I am a member for more than 6 months now and appreciate being able to learn so many things from you. Keep goin' like this…Was wondering if you could experience more regarding the Trendspider charting software, you mentioned some weeks ago. I am currently using Tradingview and have my Tradestation account linked with API. I like the naked charts and the possibility to draw my own trendlines. Besides this I am using of course MarketSmith to do my whole screening fundamentally and technically.

But I could also imagine that the automated process offered by Trendspider is efficient and time saving. So I was wondering how you think about it, if you had the chance to explore it a bit more?

All the Best from Germany

A: I appreciate your positive feedback regarding the service.

I did not find the Trendspider software to be useful in my market activities. However, many traders find it helpful. I will also say that it took me 10 years after I first saw candlestick charts before I began using them. Since it does not behoove me to spend time with Trendspider, my suggestion is that you roll up your sleeves and do some research.

Kevin Marder

For intraday ideas and analysis: https://twitter.com/mardermarket

Unless otherwise noted, charts created using TradeStation. ©TradeStation Technologies, 2001-2019. All rights reserved.

The views contained herein represent those of Marder Investment Advisors Corp. At the time of this writing, of the stocks mentioned in this report, Marder Investment Advisors Corp., Kevin Marder, or an affiliate thereof held no positions, though positions are subject to change at any time and without notice. Estimate data provided by Thomson Reuters. Expected earnings release dates provided by EarningsWhispers.