April 8, 2020

Stocks are giving a good account of themselves this week, with Monday producing a Nasdaq follow-through day (FTD). While FTDs occur preferably during the fourth through seventh days of rally off of a low, bull markets have begun with an FTD that comes along later.

The key statistic was Monday's volatility which was 1.5x greater than average. This shows conviction and provides some depth to the analysis.

The downside is that Monday's Nasdaq follow-through lost some of its luster when a major distribution day occurred on Tuesday. As was discussed on the Twitter feed and also in Sunday's report, there is a 95% chance that an FTD fails when a distribution day occurs the following day. However, as noted recently, we always focus on what is happening now. While a certain amount of attention should be accorded to historical precedent, at the end of the day we are discretionary traders not following a mechanical system.

 

Outperformance since the Mar. 23 bottom has been in the beaten-down sectors, e.g. energy, as market participants seek bargains. This was seen in the wake of the '00-'02 bear market, when growth did nothing for the first six or seven months of the new bull. After that, it led. At least in the current situation, there are some growth issues building bases, unlike what happened all those years ago.

Because the new trend is just getting going, it makes sense to have some exposure, but on a pilot buy basis. This means starting with one or two positions that might be sized at one-half or less normal size and then giving them a chance to prove themselves before wading deeper into the water. Granted, there are only a few titles that set up, and nothing really jumps out as being something to get overly excited about. Of course, this could all change in a day or two, so we must remain open-minded and flexible.

Of import is the fact that nothing has broken out yet and followed through. This should augur for pilot buy mode as opposed to jumping in due to FOMO.

A couple of areas that may materialize into something are the TQQQ and sector ETFs in the semiconductor and energy segments. These would likely be entered on weakness, i.e. using one or more swing setups as we have done previously.

Dexcom (DXCM)

Inovio Pharmaceuticals (INO)

Netflix (NFLX)

Nortonlifelock (NLOK)

Pinduoduo (PDD)

Vertex Pharmaceuticals (VRTX)

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

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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 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.