Years ago, I learned an important lesson. When the averages are in an uptrend and only a few growth issues in the entire market set up technically, it is best not to play the game from the long side. In particular, this applies to a market in which few breakouts, if any, are following through for 20%-25% gains post-breakout.
At present, the averages are in an unequivocal uptrend. Over the weekend, after looking at 1,076 charts of individual stocks priced at $13 and up, I found just five pattern setups. Few breakouts are following through meaningfully. This is a market that should be avoided on the long side. Cash is king.
In light of the above, I have nonetheless discussed the five setups below in the event that some subscribers need or want some long exposure. I do not intend to take positions in any of them myself and they will not appear on the Focus List. I do not expect these five to be successful in a meaningful way.
Another reason for listing them below is that their behavior should be instructive as to better understanding the speculative sentiment, i.e. the degree to which there is anything at all left of a risk-on environment following the recent breakdown of the growth sector.
Axsome Therapeutics (AXSM) is a development-stage biotech outfit. As such, it has no earnings or sales. A 99 RS stock in a 71 RS group with a B acc/dis rating. The stock broke out of a seven-week consolidation last Monday, +9% on +70% volume. As is typical of breakouts in this market, sellers emerged the next day to drive price back into its base.
The stock now sets up as a pullback entry above Friday’s high of 28.31 with a suggested stop-loss pivot of Friday’s low of 27.10. Trade risk is 4.3%. Earnings expected Nov. 7 (unconfirmed).
Fresh Pet (FRPT) shows an earnings-per-share progression of -0.15/0.05E/0.57E for ‘18/’19E/’20E while logging sales growth of 27% and 26% in the two recent quarters. Its acc/dis rating is B.
The stock is working on a three-month consolidation-with-handle. It sets up as a pullback entry above Friday’s high of 49.86 with a suggested stop-loss pivot of Wednesday’s low of 48.14 for trade risk of 3.6%. Earnings expected Nov. 4 (unconfirmed).
Snap (SNAP) is expected to post earnings per share of -0.20E/-0.01E for ‘19/’20. Revenue growth has been solid at 39% and 48% in the two recent quarters. A 99 RS stock in a 36 RS group (Internet – Content) with an acc/dis rating of B.
Price forms an eight-week cup and is 7% from its pattern high. This is not yet actionable, but worth watching as a possible entry pivot of 18.36, the pattern. Earnings expected Oct. 22 (unconfirmed).
Solaredge Technologies (SEDG) is expected to show earnings growth of 20%/17% for ‘19/’20. Sales have increased 30% and 43% in the two recent quarters. A 99 RS stock in a 99 RS group with a B+ acc/dis rating.
The stock was on Thursday evening’s Focus List as a buy idea above 90.45. Friday, price cleared this level before encountering selling that pushed it back by as much as 5% below the pivot intraday. The stock then recovered to stand virtually unchanged on the session.
(Buy ideas are considered to be a stop-out when they have fallen 6% below the entry pivot. Six percent seems reasonable considering most players will likely use 5%-7% or 8% as a stop. Thus, SEDG remains an open triggered trade.)
For those who missed the entry but are still interested in the stock, it is possible price will form a handle over the next few sessions. Earnings expected Nov. 5 (unconfirmed).
Sunpower (SPWR) is expected to show a per-share loss of 34 cents in ’19 and a profit of 19 cents in ’20. Sales have declined in each of the last four quarters. A 99 RS stock in a 99 RS group.
SPWR forms a seven-week cup. This can be monitored for a possible takeout of the 16.04 pattern high. Earnings expected Oct. 30 (unconfirmed).
In sum, cash is king.
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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.