April 1, 2020

Stocks traded sharply lower Wednesday, as the nation comes to grips with an especially trying few weeks ahead of it. For its part, the Nasdaq lost 4.4%, though about two-thirds of the loss occurred in the overnight session. Also, a forward-looking component of the widely-watched ISM survey of purchasing managers showed the worst reading since the financial crisis.

Technically, this left the Nasdaq decisively below the key 20-period moving average line. This after a few days of flirting with the line.

In Sunday's report, the crashes of '87 (Dow -22.8% in a day), '08 (S&P down about one-third in 15 sessions), May '10 (the so-called Flash Crash), and August '11 (the downgrade of the U.S. credit rating) were mentioned as models for what might be expected from a market experiencing a steep descent.

A chart of the August '11 downdraft was shown. This featured a four-month period of wide swings as the Nasdaq attempted to find an equilibrium between buyers and sellers. Following that, the market took off.

Below is a chart of the May '10 drop. The same four-month pattern of swings similar to the August '11 chart is evident. Subsequently, stocks launched an advance.

The stocks that are currently showing good relative strength lines have certain things in common. Namely, their businesses must be Covid-resistant. This means online retailers, such as Dominos Pizza (DPZ), +3.0% today, strong delivery business through their online presence; Petmed Express (PETS), online pet food; JD.com (JD), the Chinese online retailer which needs more technical work; and Chewy (CHWY), online pet food, earnings due Thursday.

Also part of the stay-at-home theme: Teladoc Health (TDOC), which allows teleconferencing between patients and their doctors; GSX Techedu (GSX), Chinese online education; Nortonlifelock (NLOK), a security software firm with no physical presence; and Zoom Video Communications (ZM), the leading teleconferencing firm.

Critically, we have not seen any successful breakouts from legitimate basing patterns over the past two weeks from any of our Watch List names. These represent the market's growth-stock leadership. Some have broken out of v-shaped patterns such as Citrix Systems (CTXS), Cloudflare (NET), Five9 (FIVN), Ehealth (EHTH), and RingCentral (RNG), but they have not followed through.

There were four buy ideas on the Focus List over the past few days. DocuSign (DOCU) was removed after triggering two entry pivot levels. Two of the remaining names are discussed below, however at the moment they are not on the Focus List due to the general market environment. They can be considered if there is a change for the better in the Nasdaq average.

GSX Techedu (GSX)

Vertex Pharmaceuticals (VRTX)

In sum, cash is king.

Q&A

Q:  I got in to DOCU at the pivot (just a very small position). I set a 4% stop just to give it a bit of room. In your video tonight, right before you pulled up the five minute chart, you started to say something along the lines of "it came out, but in this market..." and didn't finish. So in a crazy market like this, would you typically off load something if it goes back below the pivot and wait for it to come back out? Thanks.

A: Thank you for your email. Yes, what you are suggesting is always acceptable, as long as you are acting nimbly enough to reenter if it comes back out, i.e. re-crosses the pivot. With that said, I think a 4% stop is perfect for this situation given its sparkling fundamentals and its RS line. I am glad you took the position because it is the most attractive on the Watch List, in my opinion. It was actually a pretty good day since it was +6.8% on +85% volume.

Kevin Marder

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

All stock charts created using MarketSmith. ©2020 MarketSmith, Incorporated. All other charts created using TradeStation. ©2001-2020 TradeStation Technologies. 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 a position in DOCU, though positions are subject to change at any time and without notice. Estimate data provided by FactSet. Expected earnings release dates provided by EarningsWhispers.