April 22, 2020

To hardly anyone's surprise, stocks pulled back for two days to start the week. This is viewed as normal, healthy, and necessary. Today's rebound was welcomed, but occurred on the lightest volume since Feb. 19, the final day of the prior bull market.

It would not be the worst thing for the averages to tread water for a week or two. This would allow leading stocks some time to better develop their basing patterns.

There is a lack of volume in many names. This does not show up in the Nasdaq Composite's volume due to its overweighting in technology bellwethers in the Nasdaq 100. This lukewarm turnover is believed to be due to caution amidst the unknowns of earnings season. As well, an abundance of bearish sentiment has sapped the conviction of some players.

Despite Wednesday's soggy tape which resulted in five stop-outs of Focus List buy ideas, overall results have met expectations considering the unimpressive turnover level. For newer subscribers, it is recommended that you scale into a position rather than go all-in. The 50-30-20 pyramiding method works well for this. For example, if you target a 10% position as a percent of your account, you would take a starter position of 50%, or 5% of your account. If this position moves up 2%, you would add a second tranche of 30%, or 3% of your account. If price rises another 3%, you would add the third and final tranche of 20%, or 2% of your account. The goal is to have an average cost of around 2% above the pivot.

The 50-30-20 method is a good risk mitigator, as you are only increasing your position if the market provides the right feedback. Otherwise, you are limiting any potential loss.

Meanwhile, the risk is that the U.S. opens for business prematurely, which spikes the infection rate. If that was to occur, it is logical to expect the market to sell off due to an increase in uncertainty as to how the country would then proceed.

For the following charts, click to zoom in.

Advanced Micro Devices (AMD)

Alpha Pro Tech (APT)

Nvidia (NVDA)

ProShares UltraPro QQQ (TQQQ, a 3x ETF) sets up as a pullback in an uptrend. It can be taken above today's high of 63.66. A suggested stop pivot is today's low of 60.31 with a 1R target of 67.01, for trade risk of 5.4%. Subscribers can either scalp for 1R, trim and trail (trim half the position at 1R and trail a stop on the remaining half), or use this as an entree for a position trade. The latter is recommended.

In sum, the trend remains up. The market gives a good account of itself considering the uncertainty as to when the economy will begin to bounce back. At the moment, there is a thin menu of actionable issues. In time, this is expected to improve.

Q&A/Comments

Q: I have a question for you: I still see many stocks from my and your watchlist (80% overlapping) breaking out on rather low/medium volume, so definitely not the convincing volume I normally would like to see according to my breakout rules (>50%). And I also see quite a few stocks are still advancing after the breakout on this rather low/medium volume. What is your interpretation on this? Conviction from the big players missing and hesitation to really press accelerator? How do you handle these breakout with less than desired volume? Do you e.g. make these buys with reduced position size? Would love to hear your perspective on this.

A: Yes, mediocre volume or volume that is not confirming reflects less-than-ideal conviction from large investors. I did an informal study of 2017 winners over a particular period during that year and found that about 40%-50% broke out on non-confirming volume. So, while less than ideal, I do not let it interfere with my buying them, nor do I reduce position size. The idea is that if they do not work over the first few days or week post-breakout, they can be exited, though there is no set-in-stone rule for that. Some stocks show volume come in the following day or a few days post-breakout. In certain situations, e.g. NLOK, I state in the Focus List that it "needs volume." I hope this is helpful.
Q: I'm not sure if you've talked about this before so apologies if you have. My exit strategy is usually pretty sound, especially if I have only one tranche put on. When I get busy with school (PhD work) it's hard to pay close attention after the initial buy so I don't always get to pyramid. However, if I get a chance to add a second and third tranche, I get extremely confused as far as risk management. Do you have any advice on setting stops once you've added onto a position one or two times or do you still use your moving averages? Thank you.
A: Congratulations on your quest for a PhD! I think that is outstanding. I don't use the moving averages until price is up 15%-20% above the average entry cost. This is because I strive to allow a position room to breathe so that it has a chance to prove whether it has the goods to become a big winner. The bigger the gain one has, the more valuable the moving averages are, in my opinion.

Q: Hope you and your family are staying healthy and safe during these times.  In today's introduction video, you mentioned that your style has not changed much over the last 20 years with the exception of how you exit trades.  Can you elaborate more on these exceptions for exiting a trade?  Especially the ones that are showing profits. Also, you utilize market smith as your main tool for stock fundamentals, are there any other publicly available websites that we can gather these fundamentals from?  I mainly use TC2000 for technical analysis and screening stocks.  Looking for a good site to check stock Revenue/EPS projections.  Zacks are the MSN are the main 2 I have tried so far.

Greatly appreciate your insight, been following you off and on since early 2000, but now at a point where I am trying take my learning to the next level. 

A: Once a position has a reasonable gain, I will use the 9ema, 20ema, and 50sma to guide my exits. I will always take off a portion of the trade, if not the whole position, at an intraday break or end of day close below the 20. For some positions that I am playing out for a bigger gain, I will be out of a good portion of the position before it gets to the 50, but will exit the remaining shares on a break or close below the 50. I do not want to be in any position once price is below the 50.

The 9 I sometimes use for a small exit of 15% of the position. When price moves up strongly and almost vertically for a good-sized gain after breakout, I have found that its first pullback that takes out the 9 often takes out the 20 within a day or two if not on the same day. Thus, I will take more off than 15% in that case when it takes out the 9. I do not have mechanical exit rules. Each stock is different from the rest and requires a custom approach. 

I am unaware of services that provide revenue/earnings estimates besides MarketSmith.

Subscriber: I briefly wanted to give you a quick feedback on the question of video length and content you asked about in one of your videos this week. I do not have any problems with videos >20min, but my preferred length would be in the range up to 15min. Of course this would include exceptions if you want to go into some specific details. With regards to the number of stocks talked; I definitely prefer if you only talked a handful of names and instead would go into much detail on what you see and how you judge the stocks instead of quickly going through 50% of our watchlist.

As said in an earlier email conversation with you I would also like to hear more on the trade management of the stocks you trade / traded. Not to copy this (I have no problems if this would come with a delay of several days), but to really learn from this. When exactly did you enter, what was the position size, how did you scale in and out of the stock and why did you do so. This would be great. Once again, I am super happy with your service and would recommend it to anyone asking me for a mentor / coach. Keep up the great work! Stay healthy.

KM: Thank you for your input. It is valuable. As for discussing half the Watch List names, it was only going to be a temporary thing. I wanted to show the thought process as I narrowed the field down to those which were actionable. 

Subscriber: You are simply the best, Kevin. The humility, steadiness, and graciousness you exhibit in the midst of dispensing such consistent, indescribable wisdom are qualities only the truly great ones possess.  It is always an absolute pleasure watching, and learning from, you. All the best to you, Kevin.

KM: Thank you! I am humbled by your words and I thank you for sharing them with me. I am happy to see the service is meeting your needs.

Kevin Marder

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

All stock charts created using MarketSmith unless otherwise noted. ©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 TQQQ, though positions are subject to change at any time and without notice. Estimate data provided by FactSet. Expected earnings release dates provided by EarningsWhispers.