To reiterate, stocks are believed to be in a brand new bull market which began Mar. 23. At that point, the market, in its inimitable wisdom, saw through the current severe economic recession. Markets despise uncertainty above all else, and on that day the fog finally lifted and the discounting process was complete, though this was not entirely known until some days later.
This phenomenon whereby the market bottoms when the news is grim always catches less-experienced investors by surprise. They assume the news will be good when a bottom is put in. They allow the news headlines to influence their sentiment on stocks. For the purposes of speculation, the only purpose the news serves is for comparison to price behavior.
I had been watching the news each day as the averages declined in March. Bad news on the coronavirus produced down days in price. I was waiting for the first sign of the Nasdaq rising on bad news. This time was a bit different because on Mar. 23 the Fed announced it would backstop the higher-quality bond market. This was good news from a speculator's point of view.
This was considered extraordinary and had never happened before. In the financial crisis of '08, Ben Bernanke pulled out many tricks from the book on how to save an economy. But he never guaranteed the solvency of corporate bonds. Further, a few days later after the momentous Mar. 23 announcement, the Fed said it would also backstop the junk bond market. It was this corner of the investment universe that had seen the biggest bubble, one that would have imperiled the global financial system had it burst.
To illustrate how huge this bubble in corporate debt had become, 1 in 6 publicly-traded U.S. corporations did not have the funds to pay interest on the loans they took out. They got by over the past few years by refinancing their debt which allowed them to make debt payments. About three years ago, I tweeted a link that explained this whole corporate debt bubble in detail.
It was this bubble that had me concerned that the next recession would be worse than '08-'09, jeopardizing the dollar's status as a fiat currency.
Apparently, a number of institutions felt the same way, because the Fed's Mar. 23 announcement that it would support the corporate debt market effectively removed this bubble risk from the speculating equation, allowing stocks to enter a new bull market.
Otherwise, a lot changed on Monday which continued on Tuesday. Specifically, a number of fundamentally-sound growth stocks began crossing early entry points and a few broke out. Recall that Sunday's report contained only four actionable names. Monday's Focus List contained 10, as did Tuesday's.
Literally overnight, the market had changed.
Premium subscribers did not miss a trick. Monday evening's video discussed the expanded Focus List which provided fodder for some entries on Tuesday. By Tuesday in mid-session, it was clear that Monday's wake-up call was genuine.
Our game plan will be to emphasize liquid glamours like Netflix (NFLX), which was one of the four names on Sunday's Focus List and which triggered an early entry on Monday and a breakout entry on Tuesday; Amazon.com, which provided us with an early entry Mar. 31, and a standard breakout entry on Tuesday; and Nvidia (NVDA), which gave us an early entry on Tuesday.
Semiconductors will also be emphasized, in particular Advanced Micro Devices (AMD), forming a beautiful eight-week cup; Inphi (IPHI), and NVDA; in addition to software issues.
In sum, when it comes to the leading growth-stock glamours, the tide turned on Monday and became obvious to all on Tuesday. The view is quite bullish. Speculators should be back to full-size positions after last week's pilot-buy mode.
For Part II of this report, you will receive a notification email providing a link to a video.
Q: I wanted to comment that your video from yesterday was excellent. Personally I really appreciate the longer videos with more insight into your thoughts and reasons for liking/not liking particular stocks and thoughts on the market. As my main goal is to learn and develop as a trader.
One thing that I have not done previously is consider buying a stock running straight up out of a base (eg. Veev above 176.90), without a period of consolidation just below the breakout price. Does this not make being stopped out a lot more likely? As there is no obvious support level within 10% or so of the buy price and the stock feels a little extended? Many thanks for your thoughts.
A: In a perfect world, we would only take stocks trading just beneath their pivot point with tightness in the price pattern showing a dry-up in volume. In the real world, however, we would limit our opportunities if we only took those that showed this behavior. If a stock is up 20% in just a few days just prior to the breakout, I would consider passing on it. However, I did an analysis of these types of situations and determined I should be more forgiving of some -- but not all -- names that act like this. The best way to determine what is optimal is to go back and look at some big winners and analyze their bases in terms of what they looked like prior to breakout.
It is a good question and I thank you for it.
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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, Marder Investment Advisors Corp., Kevin Marder, or an affiliate thereof held positions in AMZN and NFLX, though positions are subject to change at any time and without notice. Estimate data provided by FactSet. Expected earnings release dates provided by EarningsWhispers.