The current chop fest is understandable when one considers we were up 7 of the first 8 months of the year. With markets typically undergoing 2-3 corrections of 7-12% a year during bull phases, the current market backdrop is normal, especially in an Election Year. August and September are never any fun.
So, when do we get a new up-leg where our process kicks into overdrive? Well, I wish I owned that crystal ball. While our gut says, “After the Election,” we will let our process guide us.
Here is what we are on the lookout for:
First, we will want to see a LOT less failed breakouts like we have seen this week in pristine setups.
TGTX is indicative of the tough backdrop we are currently in. I gave TGTX a go with super-small size Tuesday morning and was stopped out within an hour:
While TGTX was a tiny paper cut, it helped my PnL dramatically this week by acting as an excellent “tell,” immediately signaling to me that this market was going to be a waste of time through Friday’s jobs report and, even likelier, through the Fed Meeting next week. Perhaps even until seasonality turns favorable in October.
VRNA and PYPL’s sharp reversals at clean pivot points were two additional tells reinforcing the need for caution in the near-term:
Ultimately, our PnL has been the biggest tell for us lately. While still hovering near our high-water mark on the year, with our recent picks disappointing of late, our main goal has been to protect our hard-earned gains from earlier this year. Our process thrives during up-trends, NOT during market chop. This game is never easy but, that being said, it’s EASIER to make money during strong up-trends.
The mark of all top traders is NOT giving back these hard-earned gains during market dislocations, exercising discipline, and sitting-out power when one’s process is not in favor.
With most of our outsized gains in the year occurring when volatility was low and the VIX below 17, the current VIX, in the low $20s, is another tell for us to go slow in the near term. We are tracking the VIX closely now. In our experience, Market Turns are usually presaged by a big spike in volume on a VIX surge to the high $20s/low-$30s, followed by a sharp reversal back below the 10-day EMA, with consistent retreats below the 50-day and then the 150-day and 200-days.
If the $VIX was a stock, wouldn’t you be anticipating a secondary move here?
The ultimate gauge we are waiting to turn positive on the market is a spate of fresh breakouts. Typically, new market leaders will begin peeking their head up BEFORE market pullbacks have ended. This is one of the reasons we probed TGTX earlier this week: to see if a new potential leader would be able to break out AHEAD of the market.
While we are cautious in the very near-term, what makes us bullish longer-term are the scores of set-ups proliferating in our Watch List – seemingly poised to break out any day now. Moreover, most of our set-ups are names that have NOT led all year, another important factor increasing the odds that this market will treat us to one final move up before the clock runs out in 2024.
SIDEBAR: For those still long a bunch of AI names, we are in the Dan Niles camp. We believe that a normal period of CAPEX digestion is forthcoming for companies levered to AI such as NVDA and AMD and AVGO. This should lead to additional downside for the group in the coming quarters, as forward numbers eventually miss estimates. In due time, a new CAPEX up-cycle will emerge. Most likely when a killer app for AI arrives on the scene.
The rest of this piece is therefore mostly visual, providing you with a glimpse of the strongest names we are tracking each day – a behind-the-scenes look at our process before it kicks into high gear. Once that happens, you will be hearing a lot from us.
Until then, our job is simple: lose as little money as possible by exercising discipline and our sharp-shooting skills, while simultaneously prepping to get aggressive when we believe the market has begun its next up-leg.
We are long a starter position in Byrna Technologies, Inc. (BYRN). Some 411:
Byrna manufactures and sells non-lethal CO2-powered guns designed to deliver its plastic pellets accurately and effectively up to 60 ft. BYRN's market is gun owners who do NOT want to pull the trigger when a human is the target. The company employs a "Conservative Political Influencer Strategy" (including Sean Hannity) to market its guns.
The BYRN (also the name of the hand-gun) fires a range of projectiles that contain either a mixture of OC and TS (tear gas) or OC and pava, which is an effective pepper round. The effects of impact are neurological NOT physiological.
Byrna’s handguns are legal to carry concealed in all 50 US states without permits, background checks or waiting times.
Yesterday the company preannounced a strong Inflection Point quarter, with sales tripling YoY:
Byrna Technologies reports preliminary Q3 revenue $20.8M, consensus $16.06M.
Based on preliminary unaudited results, the Company expects total revenue for the fiscal third quarter of 2024 to be $20.8 million compared to $7.1 million in the fiscal third quarter of 2023. This 194% increase in revenue was driven by both Direct-to-Consumer as well as strong Dealer & Distributor sales.
The Company attributes this record sales performance to the continued success of Byrna's marketing strategies, including its celebrity endorsement campaign which it kicked off in the fourth fiscal quarter of 2023.
We love the multi-year base here and the strong accumulation today and yesterday. A move to $20-$25 seems likely over the next 2-3 quarters:
We are also long a very small position in Vaxcyte Inc. (PCVX) via the October 100 calls. Vaxcyte released “home run” data this week:
Vaxcyte price target raised to $153 at Leerink after VAX-31 'home run'
Leerink analyst David Risinger raised the firm's price target on Vaxcyte to $153 from $106 and keeps an Outperform rating on the shares following "stunning" VAX-31 Phase 1/2 adult results that exceeded expectations and the firm describes as a "home run." The firm, which believes that the VAX-31 adult data represents a "significant derisking," increased its estimated total probability-adjusted 2032 VAX-24/31 worldwide sales for adults and infants to $5.0B from $2.3B.
Our position size is silly small. But we want to be long a small position as we like the long-term potential here along with the potential for a much larger player to come in and write a check for them. With $5-$6B in peak sales potential for its main indication very likely by 2030, it would not be crazy to see the company taken out in the next 6-12 months for $200+.
Full disclosure: Our track record is not great with Biotech. The group has done nothing in years though and with Semis out of favor and the Fed poised to embark on an interest rate cutting cycle, is this the time for XBI to surprise to the upside? We think so.
As such, should XBI’s $103-$103.5 pivot point get taken out, we believe this would be the time to get the long the group in size.
We think the consumer will perk back up when the Fed starts cutting rates. We are therefore focusing on names levered to a reinvigorated consumer. We are very bullish on AFRM Holdings, Inc. (AFRM) longer-term. We think AFRM’s numbers are too low with their Buy Now/Pay Later offering poised to go into overdrive with Apple choosing AFRM as its gold standard on Apple Pay.
AFRM has a lot of work to do though in the near-term and will need another quarter of big upside before we think it breaks out through $51.50. We love its multi-year base. Whenever $51.50 does get taken out, we see a move to $60-$70 taking place quickly thereafter.
Other consumer related names showing strong relative performance include our long-term pick, Sezzle Inc. (SEZL), which has nearly doubled since we recommended four months ago at $70. We think SEZL can go to $200 the next 6-9 months:
Upstart Holdings, Inc. (UPST) has a messy set up on the daily chart, but its weekly looks constructive. We prefer to buy strength on a move through $45 in the coming weeks/months:
Lending Club had a killer quarter last month, with big upside forward guidance. We love the long-term base here and are waiting to see if they can produce another big Beat n Raise. Another would be the trigger for us to get involved here, as we then think a spirited move to $17-$20 would materialize, thereafter.
We remain long Frequency Electronics Inc. (FEIM). The defense group is in a big super-cycle. FEIM reports next week. We expect a big quarter. Remember, FEIM is at 20-year highs after its special dividend of $1 is taken into account. We continue to expect a move into the $20s the next 6-9 months:
Northrop Grumman Co. (NOC) and RTX Corp. (RTX) both remain super strong. Each should break out further once we see a new up-leg materializes.
Going to go freestyle the rest of the way.
Within software, we really like the way Oracle Corp. (ORCL) is setting up, but with it being an AI-levered play now, will its break out be successful if they come out with another big beat and raise? We will see:
Cava Group Inc. (CAVA) had a big quarter and guide up and has digested its recent secondary offering nicely. A decisive close above $120, along with an immediate follow through into the mid $120s would act as a strong market tell that a new up-trend may be at hand. CAVA is the type of market leader the market will need to make progress from here into year-end.
Sames goes for BOX. Strong action after a nice beat and guide up. We’re looking for a strong move through $34-$35 to get involved with the name.
We think housing will turn up strongly after 2-3 Fed cuts.
TGLS acts like a champ. We love the setup here and plan to Buy-Stop in on any move to new 52-week highs.
Same goes for SKY, which had an awesome quarter. The “body language” of Skyline’s Management Team was super positive with its last release:
Skyline Champion reports Q1 adjusted EPS 91c, consensus 74c
Reports Q1 revenue $627.8M, consensus $601.25M. "I am excited to announce that our shareholders approved our corporate Company name change to Champion Homes, Inc. during our annual meeting this year. The name change aligns with our previously launched Champion Homes flagship brand supporting a unified Company, our purpose of championing home attainability and the customer experience, as well as the Company's direct-to-consumer marketing and digital expansion," said Mark Yost, Champion Homes' President, and Chief Executive Officer. "In addition, I am pleased to report Champion Homes delivered strong results for the first quarter of fiscal 2025. Throughout the quarter, we experienced an increase in demand for our homes evidenced by growing sales and backlog. This positive trend reflects the benefits of our strategic investments in expanding our retail footprint and capitalizing on the growing need for attainable housing in the market. As we continue to advance our strategic initiatives, expand our capabilities, and strengthen our value proposition, Champion Homes is ideally positioned to drive growth and deliver value to our shareholders for the foreseeable future."
Gorgeous 4-year chart in SKY to boot:
There is a strong bull market afoot in Genetic Med-Tech Testing.
Our long-term pick Genedx Holdings Corp (WGS) tripled for us this year, a pick that helped spur some of our big outperformance this year.
Turning to others, we think both Veracyte Inc. (VCYT) and Castle Biosciences Inc. (CSTL) have strong upside potential in a new up-trend.
In addition to fundamentals inflecting, we love the super constructive long-term basing patterns in each:
Within financials, we are fond of Virtu Financial Inc (VIRT)’s positioning in the near-term. We think the stock has upside potential toward $40 should we see another big quarter from them. Check out its 5-year monthly. Juicy!
The Gold Miners continue to act well. We are most favorably inclined to a small cap in the space, Iamgold Corp. (IAG), which has posted two big quarters in a row and whose stock is still very attractive, trading for only 7x forward earnings:
Its long-term chart is super strong. We think $6-$7 is coming by Q1 2025.
We have dozens of other stocks poised to break out too. Too many to include charts on each, as it has already been a long week.
Here is a list of these names we are currently tracking behind the scenes:
GDS, GTLB, CPNG, RCAT, PPTA, NUTX, AXGN, CARG, LOCO, COMM, YOU, WMT, AZPN, CLBT, RKT, MELI, HROW, CMPO, DOCS, AAOI, PYPL, EM, PRCT, AXSM, ZM, BMA, CVLT, RVLV, CRTO, MNDY, SN, EOLS, OSPN, CDNA, AXON
We will leave it here and plan to be in touch as our process moves back into its sweet spot, or, when a special situation emerges before then.
Until then, to each a good day and a strong finish to the week.
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Disclosure: We are long BYRN, FEIM stock and PCVX calls. We may change our positioning at a moment’s notice, without notifying you of any such moves.
Disclaimer: All of the information in this piece has been prepped by Inflections Consulting LLC. Readers should know that it would be incorrect to assume that past and future names of interest will be profitable or will not turn into a loss. Inflections Consulting LLC does not and will not assume any liability for any loss that could occur if you invested in such stocks written about.
All the content in these reports have been prepared by Inflections Consulting LLC. We believe our sources to be reliable, but there is no guarantee here. The information in this piece does not constitute either an offer nor a solicitation to buy or sell any of the securities name-dropped in this piece.
All contents are derived from original or published sources believed reliable, but not guaranteed. This report is for the information of Top Tier Inflections members/subscribers, only. Absolutely none of our content may be reproduced in whole or in part without prior written permission from Inflections Consulting LLC. All rights reserved.
In no shape or manner should the views expressed in this piece be considered investment advice. We reserve the right to change our positioning in our BYRN, FEIM stock and PCVX options positions at a moment’s notice without updating you on any such change in opinion and positioning. That may be tomorrow, even before our price target is hit. Facts change, our opinions can change quickly too.
Investors need to consider their investment risk tolerance before investing in the stock market and also before investing in any of the stocks mentioned in this report.
