October 30, 2019

The averages continue to show improved tone, with today’s Fed meeting announcement contributing to a productive, if not potent, intraday reversal to the upside.

The Nasdaq Composite, then, is situated in an enviable position, seeing as how it is well above the 20-day moving average line. Moreover, it has closed above the 9-day line for three weeks, a sign of a strong trend.

To boot, earlier this week it stalled just below its three-month high and pulled back for two days. This is considered a positive, as it helps keep the crowd honest two days ahead of Friday’s heavy data docket. Friday will see the monthly NFP report (nonfarm payrolls) and the monthly ISM report, the two biggest market movers of each month.

Subsurface, the key software segment, which led the market for nearly all of the last five years, is now showing faint signs of revival. Specifically, our favored gauge, the Invesco Dynamic Software ETF (PSJ), has outperformed for five days running.

The PSJ is favored over other software indices because it is 40% comprised of aggressive growth titles. This is about twice as much as the iShares Expanded Tech Software ETF (IGV), which is mainly made up of legacy software issues.

The PSJ’s behavior is far too premature to draw any hard and fast conclusion, but it is a step in the right direction. It will be important to use any additions, software and otherwise, to the Watch List as well as any breakouts of these Watch List names to gauge whether the speculative sentiment has truly turned.

For now, the growth sector still leaves much to be desired. However, there is a sense of faint improvement in some individual issues. Enough for aggressive and very aggressive operators to stick a toe back into the water via one or more pilot buys, especially in light of the stout averages. These test buys should use measured risk. Less-aggressive speculators should remain in cash.

Among the names, 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 46% and 62% in the two recent quarters. A 99 RS stock in a 78 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. It is six days into forming a handle. The entrance pivot is the handle high of 44.10. The earnings report was released today with little reaction.

This is a very aggressive stock due to its history of losses, expectations for more of the same, and its biotech industry group. The bull thesis here rests on its 99 RS, its giant single-day move of early September, and impressive revenue growth. For very aggressive players only.

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. A 99 RS stock in a 69 RS group with a B acc/dis rating.

Price forms a seven-week cup-with-handle base with a 20% depth. In Sunday’s report it was noted that “It is buyable above the handle high of 39.83.” Tuesday, it cleared the pivot, +3.5% on -25% volume. Today, it tacked on another 2.5% on -58% volume.

Volume may be sluggish due to the upcoming earnings report, expected Nov. 12 (confirmed). Or it may be due to the still-unpopular enterprise software group. In any case, price is 1.9% above the entry pivot. It is thus not considered extended and is buyable.

Crispr Therapeutics (CRSP) is a biotech on the cutting-edge of research. It was on a lot of aggressive traders’ radar screens in early ’18 before correcting in a major way. Losses are expected in ‘19/’20.

Price is working on a three-month consolidation, moving up 31% in just this week on a positive earnings report plus speculation of a potential takeover by Vertex Pharmaceuticals (VRTX).

Normally, a 31% move in just three days is not something to buy into, notwithstanding the impressive price moves in each day on heavy volume. Thus, this is something that is only for very aggressive speculators to consider, though there is no clear entry pivot at present. The takeover speculation adds to the risk here.

Freshpet (FRPT) shows a jump in expected earnings per share from an estimated 5 cents in ’19 to 59 cents (up from 57 cents 10 days ago) 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).

Goosehead Insurance (GSHD) stands out as a growth company in a cyclical business. This explains the stock’s surge from 10 to 50 since its IPO 18 months ago. Earnings are forecast by the Street to be up from a 21-cent-a-share loss in ’18 to 40 cents this year and 66 cents next, the latter a 65% jump.

A 97 RS stock in a 77 RS group with a C- acc/dis rating. The stock can be taken above the 50.24 swing high of Friday. Earnings expected Nov. 1 pre-open (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, up from A- noted in Sunday’s report.

Price forms an eight-week flat base with an 8% depth. This is considered tight, and attractive. Sunday’s report noted “The stock can be taken above the 29.26 pattern high.” Today it broke out, +2.5% on +114%. It did this despite its earnings report expected out on Nov. 5 (confirmed).

It is now 1.3% past its pivot and is buyable for aggressive players who can appropriately position size. This means that a large, negative earnings report reaction will not cause a substantial dent in one’s account. Others can wait until after the release.

I have discussed this in the videos as perhaps the most interesting Watch List name, though the risk is there due to the looming earnings report. Use care with position size in the event you take this prior to the report.

Wellcare Health Plans (WCG) is a growth stock in the medical-managed care group. Earnings are expected to slow from 27% this year to 18% next. Sales have grown a healthy 51% and 41% in the last two quarters. A 76 RS stock in a 55 RS group with an A- acc/dis rating.

WCG has been forming a four-month cup as part of a larger, 13-month consolidation. Today, it gapped up and advanced 5.1% on +121% volume in reaction to its earnings report. The move leaves price inches below its entry pivot, which it slightly exceeded intraday before easing. It is buyable above today’s high of 301.06. A less-aggressive speculator might wish to wait for a pullback prior to entering.

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.