October 6, 2019

The Nasdaq Composite remains in a downtrend despite two days of robust gains following Thursday’s touch of the 200-day moving average line. A mild plus is the index’s outperformance in four of the last five sessions.

The backdrop continues to be supportive. The Fed is in the midst of a rate-cutting campaign and consumer spending continues apace. Though U.S.-China trade talks may not reach a resolution before the election, the market is pretty smart and may have baked that into the cake.

Within the list, technology and homebuilders outperform. A negative is the outperformance of the defensive sector, specifically the consumer staples, utilities, and REITs.

The weak link is growth-stock leadership. We held the line against buying most of the recent breakouts once we saw the failure rate increase. Let’s be patient and wait for clear evidence that the speculative sentiment has once again returned to this market.

If a few of the Watch List names break out and show convincing follow-through, it will be time for sticking a toe in the water via one or more pilot buys. These could either take the form of new breakouts or pullbacks in the first names out of the chute.

At this juncture, though, the market is not providing much of a hint that the direction of least resistance is up.

The following names are discussed in the event the general market firms. Until the downtrend in the averages is over, there is not enough of an edge for us to risk precious capital on the long side.

Clarivate Analytics (CCC) shows a vast improvement in expected earnings per share, from -1.90/0.23E/0.38E for ‘18/’19/’20. Sales, however, have been flattish in the last two quarters. A 96 RS stock in a 65 RS group with a B- acc/dis rating.

CCC forms a five-week flat base with an 11% depth. It is not actionable at present, but can be monitored in the coming days.

Coupa Software (COUP) is expected to record 138% earnings growth in the January ’21 fiscal year. This is a classic growth story as evidenced by the 44% and 54% revenue growth of the two recent quarters. A 99 RS stock in an 85 RS group with a C+ acc/dis rating.

Price broke out of a six-week pattern before failing along with virtually all recent growth-stock breakouts. Since then, it forms a four-week, mini, double-bottom pattern with three major accumulation days last week. Bases such as this one with less time spent on the right side of the pattern are preferable to those which spend the bulk of their time on the right side.

COUP is not actionable currently, but is one of the better growth actors and can be monitored.

Freshpet (FRPT) is expected to show earnings per share of -0.15/0.05E/0.57E for ‘18/’19/’20. The maker of fresh pet food has grown sales by 27% and 26% in the two recent quarters. A 94 RS stock in an 83 RS group with a B+ acc/dis rating.

The stock forms a three-month consolidation-with-handle. The entrance pivot is 52.42.

Inphi (IPHI) is forecast by Wall Street to log earnings growth of 73%/37% for ‘19/’20. The semiconductor outfit has increased sales by 37% and 24% in the last two quarters. A 98 RS stock in an 89 RS group with a C acc/dis rating.

Price forms an eight-week consolidation with a reasonable 15% depth. A cheater entrance pivot of 64.75, the 9/20 high, is considered too aggressive without a better-acting general market. Otherwise, the pattern high of 66.56 can be used.

In sum, two days of rally in the averages say little about the re-emergence of the speculative sentiment. Let’s wait for the market to show that it means business before putting capital at risk on the long side.

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.