August 2, 2020

The Nasdaq has shown quieter activity during this consolidation phase as leading growth stocks take some time to digest their prior run-ups. Monday will see the monthly ISM survey of purchasing managers, which often produces a substantial market reaction.

Many of the market's leaders have now put in three-week consolidation patterns. In an ideal world, we would only be targeting issues with 5-week-plus bases. However, the best performers often do not allow for much of an opportunity for entry in the absence of a general market correction. Thus, some issues with 3-4 week patterns are discussed below as being actionable.

These are viewed as "special" due to their hefty recent sales growth and raw relative price strength during this bull market. As posted to Twitter, "It is preferable to buy the original leaders coming out of second-stage bases rather than the latecomers coming out of first-stage bases."

To enlarge the following charts, please click on them.

Elastic N.V. (ESTC)

Enphase Energy (ENPH)

GSX Techedu (GSX)

Inari Medical (NARI)

Ncino (NCNO)

Pinduoduo (PDD)

Roku (ROKU)

Sea Limited (SE)

Square (SQ)

Wix.com (WIX)

In sum, the water remains warm for this bull market. Most leading growth titles work on three-week patterns. It is acceptable to buy these Issues as long as they are deemed special due to heavy sales growth and high relative strength. The alternative is to wait until their patterns are 5+ weeks long, which may or may not occur.

Q&A

Q: Can you point me to the video where you discuss scaling out based on 9,20 and 50 sma? I cannot seem to find it. Thank you.

A: Thank you for your email. The Marder Report of 7/15/20 contains what you are looking for. Be sure to access the Excel spreadsheet which is linked at the bottom of the page.

Q: Is your watch list built 100% from technical inputs, or, do you have a measure of fundamentals/growth included as well?

A: I create a Watch List each weekend by manually examining about 1,000 charts, and have done it this way since 1990. Then during the week the list is revised each evening. It fluctuates between 20 stocks and 120, depending on what type of market we are in. It is currently at 115. This figure is boosted by a number of recent new issues which have weeks or months to go before they become actionable (if at all). They are on the list, as are others, because I do not want to miss them once they do set up. I would rather have more names and have a smaller chance of missing something than having a narrower list which runs the risk of missing something.

The Focus List is a subset of the Watch List. It consists of usually 4-15 names which are actionable, have entry pivots, and which are a subset of the Watch List. The Watch List is updated when there is a change, about 4-5 nights per week. The Focus List is updated each evening. They are both for premium members and are posted to the members area. Attached is the file for Friday's session. If you look at the tabs at the bottom of the file, you will see how to toggle from one list to the other.

I review each chart first for technical pattern and if something is reasonably attractive I then move my eyes to earnings growth estimates for current fiscal year and next fiscal year. Ideally, I want to see 40%+, but most do not reach that level. I then also look at last 1-2 quarters of revenue growth. Both of these metrics are more important than past earnings growth. As one example, numerous enterprise software leaders have expected losses for this year and next, but they are leading the market b/c of their recent sales growth being 30% and higher, and especially 40%+.

I then check the relative strength line slope. I often override a stock's earnings growth estimates/recent sales growth if the technical pattern is compelling. I call this "trading off the chart" alone. An example might be some of the biotechs that are development-stage companies. After all, price is everything.

Summary of ERT:

1) Earnings growth estimates for current and next fiscal years; last 1-2 quarters sales growth
2) Relative strength line
3) Technical chart pattern

This is how stocks are added to the Watch List. In '95 or '96, i replaced past earnings growth with No. 1 above. Since then, I have seen no reason to change anything. When they become actionable, i.e. with an entry pivot, they are added to the Focus List.

Q: In your videos you Stoften mention that you often day-trade futures. Can you  shed some light on what's your day-trading strategy?

A: I scalp swings on a two minute NQ chart. This is the same as what we are doing with bread and butter pullbacks in stocks if we were to scalp for 1R instead of trim and trail. The difference is the inventory (i.e. our invested capital) turns over more. There are no breakouts. Most trades are 1-5 bars. I prefer the two minute chart because there are 30 bars in an hour vs. the 12 with an M5. This is 150% more setups per hour which means I don’t have to spend as much time staring at a screen in order to reach my daily profit target of 1R.

Stop is 1ATR. Target is 1R with 67% win rate, trading 9:30-11:30 ET, though lately I have been trading longer. Thus, daily target is 1R. Unless someone has a lot of patience and is aware that it usually takes years to become profitable, daytrading is not recommended.

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 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.