April 12, 2020

Very little has changed during the sole trading session that occurred since our last report of Wednesday.

The Nasdaq is closing in on an area of resistance that is book-ended by the Feb. 28 low and the confluence of the 50- and 200-day lines. Thus, it would appear to be a time for some sort of pullback in the barometer. Any pullback would be welcomed as it would hopefully allow some bases to be completed which would in turn reduce the risk of entry.

You may have heard me say that the best sentiment indicator is the market's reaction to news. Here is an example. The weekly jobless claims are quite sensitive to changes in the economy. Due to their forward-looking nature, they are one of only two economic indicators I pay attention to (the monthly ISM number is the other). The first thing someone does when they lose their job is apply for unemployment insurance. This is why the claims number is a forward-looking indicator of the economy.

Now the largest claims number in history was the roughly 700,000 during the Great Recession of '08. However, this pales when compared to the last three claims prints. They have been 3.3MM, 6.6MM, and 6.6MM. Yet the market advanced on each of these three Thursdays despite them being the worst-ever claims figures. This is what I meant when I tweeted on Apr. 3: "The market will need to begin rallying on bad news if it wants to be taken seriously."

If stocks can rise on such bad news, this says that a sold-out market has already discounted the current recession we are in. The view here is that stocks have been, and are, seeing the light at the end of the tunnel. This began with the intraday March 23 low, which is believed to be the start of a brand-new bull market.

There is always the chance that a systemic breakdown a la '08 occurs. This is clearly not discounted by the market. The major concern was an unraveling and meltdown in the corporate debt market. This is the biggest bubble currently. However, the Fed last week announced it would support the commercial paper market, though at first only investment-grade bonds would be bought, if needed.

Later in the week, though, and this is key, the Fed said it would bolster lesser-grade bonds instead of letting them fall apart. It is this lesser-grade part of the bond market, called the "leveraged loan market," that could have brought the global financial system to its knees a la '08 and the '98 financial crisis.

While the above has nothing to do with our trading program, it does suggest the market has discounted the worst. Time will tell.

Beneath the surface of the averages, a number of breakout attempts have failed recently, such as SGEN, VRTX, PETS, BILI, NET, and RNG. This is largely a function of names trying to do too much too soon, such as coming out of v-shaped patterns, and is not a concern.

Two growth stocks, Chewy (CHWY) and Livongo Health (LVGO), broke out last week on confirming volume. CHWY came out of a v-shaped pattern, while LVGO's pivot was 30% below its high. As such, they were considered unattractive for our purposes. Time will tell if they can succeed.

In Wednesday's report, it was mentioned that energy and semiconductor ETFs will be targeted for potential swing entries. To that list can be added biotech, homebuilders, financials, and gold miners. The idea would be to use a swing entry as an entree into a position trade, not a swing trade. At present, they are all extended and do not offer attractive entry. Of course, the TQQQ is also part of this list.

Otherwise, the six actionable names from Wednesday's report have been reduced to the following four, as PDD and VRTX have been deleted. Entry pivots are listed below.

DXCM (280.97)
INO  (9.20)
NFLX  (383.01)
NLOK  (entry pivot raised to 19.82 for those who missed the Thursday signal)

In sum, the trend is up and some exposure is warranted on a pilot buy basis.

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 no positions, though positions are subject to change at any time and without notice. Estimate data provided by FactSet. Expected earnings release dates provided by EarningsWhispers.