October 27, 2019

The averages received a lift Friday from word that parts of Phase 1 of a U.S.-China trade agreement were close to being consummated. Friday's close was good, though volume was sub-par as market participants waited the coming week's Fed meeting and Apple (AAPL) earnings report.

The market has been given the benefit of the doubt here ever since the last major accumulation day two weeks ago. It was then that the short-term trend changed to up after price printed a higher high. This line of thinking was corroborated by a cross of both 20- and 50-day lines.

Unfortunately, this remains a target-poor environment. Sector rotation favors value over growth, and within value it is cyclical over defensive. As the table below shows, the homebuilders and related groups such as retail-home furnishings are leading the market. Another cyclical group, retail, which represents about one-third of the economy, has shown solid outperformance for three months. These economically-sensitive segments show a market not expecting a recession.

Table courtesy of MarketSmith

Despite a glass-half-full view of the averages, nothing much has changed within the growth sector. Here, names rebuild the technical damage done during the August-September markdowns. Along these lines, it is viewed as still too early to begin pilot buys of growth stocks such as those discussed below. The following five names represent the only ones considered actionable.

The fact that they are so few in number reduces the chances that they will each go on to meaningful gains. Most subscribers, then, should remain in cash. The names below are discussed in case the general market firms and shows it means business. Until then, let's wait for evidence to emerge before sticking a toe back in the water via one or more pilot buys.

In the meantime, anything actionable from our System R short-term model will be noted.

Acadia Pharmaceuticals (ACAD) is a biotech which has lost money in recent years and is expected to do so this year and next. Sales have increased 29% and 46% in the two recent quarters. A 99 RS stock in a 75 RS group with a B+ acc/dis rating from MarketSmith.

Seven weeks ago, the stock soared 63% on +1,172% volume. It has been consolidating ever since and is three days into forming a handle. The entrance pivot is the handle high of 44.10. The earnings report should be waited for prior to entry. Earnings expected Oct. 30 (confirmed).

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 seven-week cup-with-handle base with a 20% depth. It is buyable above the handle high of 39.83. Earnings expected Nov. 12 (unconfirmed).

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 seven-week flat base with a reasonable 12% depth. The pattern high of 101.19 offers a suitable entry pivot. Earnings expected Nov. 11 (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 a 74 RS group with a C+ acc/dis rating.

The stock forms a eight-week consolidation. It can be taken above the 41.00 pattern high. Earnings expected Nov. 7 (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 seven-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 until evidence shows that the speculative sentiment has returned to the growth sector via breakouts with meaningful follow-through.

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.