Don’t Let the Poor Market Get You Down: I See Plenty of Good Charts
A classic Monday morning bull trap has snapped, and selling pressure is ramping up again.
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Bull-trap action is developing on Monday morning, as investors try to catch bottoms in the hardest-hit technology groups, like chips, space, and data centers. After a gap-up open, the selling hit fast and hard. Breadth has already sunk to around 38%. Recent leader Apple (AAPL) reversed and there is mixed action in the Magnificent 7 stocks.
As I discussed in my opening column, investors are looking ahead to Wednesday, which is the first night of major technology reports. It is tricky to try to gauge the level of sentiment, and there is obviously a lot of nervousness about a potential “sell the news” response. It doesn’t help that interest rates are ticking up.
Biotech Is Loaded With Good Charts
The good news is that, despite the recent market volatility and the struggles of the technology sector, there are still quite a few good technical setups in individual stocks. The biotechnology sector is loaded with attractive charts. A few of my favorites are Abivax (ABVX), Cullinan Therapeutics (CGEM), Definium Therapeutics (DFTX), Harrow (HROW), Indivior (INDV), Neurocrine Biosciences (NBIX), Tango Therapeutics (TNGX), and Xeris Biopharma (XERS).
A Rare Tech Setup in Five9
It is much tougher to find good charts in the technology sector, but one that caught my eye is Five9 (FIVN). Five9 sells software that runs customer service call centers in the cloud. When you call a company for help, or use their chat function or email them, there is a good chance the system routing and managing that interaction is something like Five9’s platform. The company has been layering AI into the product so that automated agents can handle more of the routine customer contacts without a human on the other end.
After trending lower for the past five years, FIVN finally hit traders’ radar screens on May 1 when the company reported strong Q1 results. Revenue grew 9.2% to $305.3 million against estimates of $300 million, and adjusted earnings of $0.76 per share beat the $0.68 estimate. The number that matters most is the AI revenue, which grew 68% year over year and now accounts for 13% of total subscription revenue. That is the growth engine. Since the report, the company released a new version of its Voice AI Agents platform in late June and brought in a new chief technology officer and chief sales officer with a focus on product development and sales execution.
The valuation is unusual for anything with an AI story attached. FIVN has a trailing price-to-earnings of 8.3, a forward price to earnings of 7.6, and a forward price-to-earnings growth ratio of 0.89. A PEG under 1.0 is generally considered cheap. In a sector where the popular names trade at multiples many times that, FIVN is one of the few names in the space that a value investor could look at without laughing.
Technically, FIVN saw some follow-through into the end of May before pulling back at longer-term lateral resistance. Shares have worked their way back since then and have recently been flagging just under the June highs and forming a near-term cup-and-handle pattern in the process.
Game Plan
I’m not rushing to add new exposure right now but there are charts that I’m watching closely and will be aggressive when I feel the time is right.
At the time of publication, DePorre was long FIVN, ABVX, CGEM, DFTX, HROW, INDV, NBIX, TNGX, XERS.
