August 16, 2020

The Nasdaq spent last week treading water, as the market settles into the dog days of summer amid a seasonal dry-up in trading activity. The growth barometer has been a slight laggard over the past five weeks as some attention has shifted over to value names.

Most growth-stock glamours are resting following their initial post-breakout runs. There remain precious few pattern setups, and our Focus List is thin. For those who absolutely feel as if they must be putting on fresh-money buys at this juncture, two issues are discussed below.

Otherwise, on average, there have been two particularly auspicious times to buy stock each year. Thus far in 2020, we have had one, which was in April following the Mar. 23 bear market bottom that saw the Nasdaq drop 32.6% in nearly five weeks.

O'Neil has said that a growth-stock led bull market will see leaders break out of bases for about 13 weeks after a follow-through day (FTD). The Nasdaq recorded an FTD on Apr. 6, +7.3% on an increase in volume. To Bill's credit, the 13-week period, which almost exactly correlated with the breakout period, ended about six weeks ago.

Since then, the number of breakout candidates has dried up after most of "the quality" made its move. This is considered normal.

Many growth stock players assume that whenever the averages are in an uptrend, growth stocks will automatically lead the market. In recent years, this has largely been true, thanks to an era of 1) low interest rates which make growth stocks more attractive than value stocks, and 2) tremendous technological innovation that has been hard for investors to ignore. In Bill's book, he mentions that growth leads the market about 40% of the time.

All of this is to say that expectations of what growth leaders can do should be tempered for the moment.

To enlarge the following charts, please click on them.

Amazon.com (AMZN)

Autodesk (ADSK)

In sum, despite the averages being in an uptrend, growth-stock opportunities for the breakout player are scarce during this late-summer quiet period. This is a time when return of capital may be more important than return on capital.

Kevin Marder

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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 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.