Market Comment

January 29, 2018

January 29, 2018

Trend, breadth, and leadership are all positive and the accumulation window remains open for institutions. According to a wire service, the market has gone 18 months without a 5% reaction, the longest in history. Heady stuff, indeed.

As noted last time, “…more fundamentally sound growth names have been building and breaking out of bases than at any time in recent memory. This is the key factor that differentiates this period from any other in years.”

The best performers normally are the first to come out of the chute, but this does not apply to all actors. There are still some growth titles that have yet to break out, and represent opportunity.

Among the names, Baozun (BZUN) is a Chinese Internet retailer with an expected earnings growth rate of 100%/71% in ‘17/’18. Revenue has not been in the 30%+ range like some other leaders. Price is working on a four-month base and is 2% from its entrance pivot at 40.65. BZUN is buyable above that point. Earnings are expected Feb. 19.

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Mazor Robotics (MZOR) produces surgical guidance systems. It has lost money each year from 2010 to 2016 and is expected to lose money again in 2017 and 2018. Despite this, there is no denying it is a hot company by virtue of its revenue growth of 83%, 87%, and 125% over the most recent quarters. As well, price tripled from the start of 2017 into its Oct. 31 top.

Since then, it has been forming a double-bottom base. It is buyable for very aggressive players above the 1/22 high of 64.30. Earnings are expected Feb. 21.

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RISE Education (REDU) was discussed in the last report as having a pivot of 15.67 which was surpassed the following day. Earnings are expected Sunday or Monday for this recent new issue, so any new deployments should be postponed until after the event.

Shopify (SHOP) was discussed in the last report as being buyable above 123.94, its base top. This has since occurred and price is now 4% above the pivot. Bullishly, the last two sessions showed volume of +60% and +65%. This name has a lot going for it fundamentally, like the muscular revenue growth of 75%, 75%, and 72% over the past three quarters. Meanwhile, the Street expects earnings to jump from a forecasted 5 cents a share last year to 26 cents this year.

In the Twitter feed @mardermarket, I wrote on Jan. 22 that SHOP has been called “the pick-axe [supplier] to the e-commerce gold rush and is intriguing.” Still buyable at 4% above the pivot, but the preference here would be to await a pullback. A favored name.

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Square (SQ) was discussed in the last report as being buyable above “the 1/11 high of 43.08.” This occurred and price is now 7% from the next entrance pivot which is the 49.56 base top. A pullback into the 43 area which served as resistance and then support could also be used for an entrance.

Price moved up 258% from last year’s February low to the November high. The ’18 estimate is for 73% growth in earnings. Revenue growth is robust and consistent around the 40%-45% level. A favored name.

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Tabula Rasa Healthcare (TRHC) is a recent new issue with estimates of 133%/89% for ‘17/’18. Revenue growth has been in the 30% range for the past six quarters, a testament to the consistency of its business. Up as much as 218% from low to high during 2017, the stock forms a nine-week cup with an entrance pivot of 36.80. Note that this pivot was surpassed last week when price traded as high as 38.23.

There is solid accumulation and TRHC is buyable above its pivot point, below which there exists some support. Entering a starter position above 38.23 takes one that much farther from support and for that reason is not preferred.

This is a smaller name ($8.7MM average daily dollar volume) and thus contains more risk. For very aggressive players only. Earnings are not expected until Mar. 13.

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Take-Two Interactive Software (TTWO) is expected to post 49%/59% earnings growth in the March ‘18/’19 fiscal years. The stock booked a 50% gain in about three months and has been basing since November. This consolidation has been 17% deep, less than normal for a base following a move of this size.

Price sits 1% from its pivot, which is the top of its consolidation. A minor negative is the lack of accumulation on the right side of its base. It is buyable with the proviso that earnings are expected Feb. 7, so any near-term buy should be sized accordingly in order to mitigate the risk of an earnings-related selloff.

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TAL Education Group (TAL) is expected to post hefty earnings growth of 71% in the February ’19 fiscal year. Revenue growth has been blistering, at 65%-68% over the last three quarters. Earnings came out last week and price shot up 18% Thursday on +321% volume.

With the stock under solid accumulation, and with blowout-level fundamentals (earnings estimate + revenue growth) the stock can be taken above the cheater entrance of 34.20 (the Jan. 8 high) and/or the formal base top pivot of 36.16 (6% away).

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Uniqure (QURE) is a Dutch drug development company with a string of losses since formation. More are expected this year. With just $8.5MM average daily dollar volume, it is less liquid than nearly all others in the watch list. After a fourfold move from May-October, it has been building a cup-with-handle base. With no earnings and revenue that is inconsistent from quarter to quarter, one must trade off the chart alone.

The stock is buyable for very aggressive speculators above the handle high of 20.90. Earnings are not expected until Mar. 15.

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Varonis Systems (VRNS) should see earnings leap from a per-share loss of 17 cents in 2016 to an expected 16-cent profit last year to a 27-cent profit this year. Revenue growth has been steady in the 30%-33% range for the past three quarters. Price broke out of an eight-week cup a week ago on +67% volume but reversed and pulled back for a few days before firing up again on Thursday and Friday.

This is a volatile actor due to its smaller size ($15MM in average daily dollar volume). Earnings are expected February 12. Price is 3% past its pivot point and is buyable.

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Vertex Pharmaceuticals (VRTX) has expected earnings growth of 60% this year and is under extreme accumulation. It cleared a six-month base last week and sits 1% above the base top. Tuesday’s 3% rise after a gap open amid +109% volume coincided with a takeout of a cheater entrance, and is encouraging. Earnings are expected out after Wednesday’s close.

An entry could be taken prior to the earnings release, but should be sized so that a 30% drop post-release will not unduly damage an account. Alternatively, a wait-and-see approach could be taken to the earnings report. Either way, this is a biotech issue with above-average risk.

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In sum, stocks are in the midst of a historic run. There are still some growth stocks that have yet to complete their bases. These offer opportunity. As well, some of the original leaders may offer attractive entrance as they eventually pull back. Position traders should guard against complacency.

Kevin Marder

For intraday ideas and analysis: https://twitter.com/mardermarket

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The views contained herein represent those of Marder Investment Advisors Corp. At the time of this writing, of the stocks mentioned in this report, Gil Morales & Company LLC (“GMC”), Marder Investment Advisors Corp., Kevin Marder, or an affiliate thereof held no position, though positions are subject to change at any time and without notice.
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