October 20, 2019

Stock averages remain in short-term up trends, though their underpinnings are a bit suspect if one examines the money flows.

Specifically, the Nasdaq Composite shows just three accumulation days to six distribution days over the past four weeks.

The bigger problem is the continued moribund state of the growth sector. This is believed to have been caused by concerns of institutions over the slowing U.S. economy. Amid these concerns, it is logical that large investors would pare back their holdings in higher-risk areas, one of them being growth stocks.

Among Watch List names, recent breakout reversals and suspicious action occurred in ARWR, DOCU, IPHI, LPSN, and RNG.

The service was correct in noticing early on the beginning of a wave of breakout failures months ago. And just as the positives are noted, so should the negatives.

Along these lines, the inclusion of Shopify (SHOP) on the Thursday Focus List as a pullback entry ended up as a stop out on Friday. The thought process here was that SHOP is viewed as the premier liquid glamour. No other institutional-quality name in the U.S. market has the earnings and sales growth as SHOP. It had printed clearly-defined higher highs and higher lows for the past four weeks.

Shopify may have been the only issue in the market that warranted taking such a setup, which was viewed as less risky than a breakout setup.

Otherwise, while there are pattern setups in this market, given the soggy growth sector, cash remains king. As always, it is important to maintain our research process. As such, the following are a few names that have encouraging patterns. They are buyable only in the event the general market firms amid better action among fundamentally sound issues. They define the speculative sentiment at the margin and are of value for this reason.

Chipotle Mexican Grill (CMG) is forecast by Wall Street to notch earnings growth of 52%/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 six-week flat base with a tight 9% depth. It can be taken above the 857.90 pattern high. Earnings expected Oct. 22 (confirmed).

Franco Nevada (FNV) is a gold-oriented company centered on royalty streams. For gold-related issues, the fundamentals such as earnings and sales are less important than is the price of gold.

FNV forms a six-week flat base with a reasonable 12% depth. The pattern high of 101.19 offers a suitable entry pivot. Earnings expected Nov. 11 (confirmed).

Freshpet (FRPT) shows a jump in expected earnings per share from an estimated 5 cents in ’19 to 57 cents in ’20. Sales grew 27% and 26% in the last two quarters.

The stock builds a four-month consolidation with an entry pivot of the pattern high of 52.42. Earnings expected Nov. 4 (confirmed).

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).

TAL Education Group (TAL) is forecast to show 84% earnings growth in the February ’21 fiscal year. Revenue rose 44% and 28% in the last two quarters.

Price forms a six- month consolidation from which it cleared on Wednesday. It currently sits 2% below its pattern high, and is now two days into a handle. Assuming a few more days of handle construction occurs, the handle high of 40.00 could be used as an entry pivot. Earnings expected Oct. 24 (confirmed).

In sum, cash is king.

Kevin Marder

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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.