August 21, 2022

Last week saw profit-taking following a market that was technically overbought short-term. As illuminated by the purple trend line, this three-week impulse wave was easily the longest low-to-high swing in the nine-week advance since June 16.

Thus, there is nothing surprising or abnormal about this pullback.

The Nasdaq appears to have an appointment with the 20 ema, following which we will look for a pullback entry in an ETF, such as TQQQ, TECL, SOXL, or TNA.

Over the period of the last 11 trading days, the QQQ has underperformed relative to the S&P 500 (please see aqua RS line as shown below). This is notable as this relationship is one of the best, if not the best, indicator of successful momentum-based speculation of which we are aware. It is a superb gauge of the speculative sentiment. To be fair, the prior seven-day period was sharply in the QQQ's favor and some giveback was to be expected.

This bears watching.

The better actors in this market have bounded up the right side of their lengthy cup-shaped bases and are now catching their breath by idling sideways. Some of these are in the oil & gas group, notwithstanding the feeble action in crude oil futures, which are below the 9 and 20 ma's.

The best performers have been a few in the alt-energy group, such as Constellation Energy (CEG), 18% from pivot; Ormat Technologies (ORA), 10% from pivot; Clearway Energy (CWEN), 6% from pivot. We stayed away from these due to upcoming earnings releases.

Otherwise, nothing is setting up at present.

In summation, this nine-week rally was predicated on the market discounting an end to the Fed's rate hike regime. In just the last week or so, the market has had second thoughts about this premise, as evidenced by the 2s10s yield spread going from 40 basis points to 22 bps, i.e. a de-inverting of the yield curve.

Let's let the market hash through what it all means, and keep our eyes on the ball, i.e. the leading stocks and sectors. Letting the market tell its own story has always been the best course of action.

Kevin Marder

Q&A

Q: Loving the service. Appreciate your assistance through this bearish market. Question on gap-ups. A stock like CSIQ and DCP - where would you look to enter those stocks (if you would) and where would you put your stops?  Both of those stocks gapped up big-time with big volume on 8/18.

A: Thank you for your feedback. I am pleased to hear the service is a good fit for you. I would be looking to buy as soon as price cleared the high of a base, e.g. CSIQ, as long as the entry is not 3% past the pivot point. Otherwise, we are too far from a support point which would presumably brake the fall if we are incorrect. The stop would be in accordance with what is covered in the Risk Management video in the Trading Lessons section. I do not trade gaps unless they clear a standard entry pivot, not an early or cheater entrance. So I would not have traded DCP.

Buying gap-ups without any regard for chart pattern details such as whether a prior resistance point is being cleared strikes me as simply buying momentum, period, in hopes of momentum continuing. There is no real support in case one is incorrect. An exception would be if a day trader is using an intraday TF such as H1, M30, or M15 to time a pullback entry using the bread and butter method.

This is entirely acceptable, and using M15 may be a better TF for this because it avoids some of the headfakes of M5.

Q: I hope you are well (and I hope the issue with your voice is nothing serious). I wanted specifically to thank you for your caution since this bear market began and your courage on many days to run with an empty focus list and recommend waiting to buy. I'm sure the temptation for you to recommend something, even a B- setup, is strong given that clients are paying for this service, but in my view there is no better advice sometimes than to stay in cash and wait. You have given unbelievably good advice in this regard throughout 2022 and I wanted to acknowledge that and thank you.

A: Thank you very much for your feedback. It means a great deal. Yes, there was a certain amount of pressure to put things on the Focus List up until a year or so ago. It was then that i made an adjustment to reduce risk w/ certain types of setups. As it happens, there is not a whole lot of turnover with subscribers. Once people come to the service, they tend to stay. And that is what I am most pleased with. Quite often, the ones who leave come back six to 12 months later.

As an aside, besides U.S. and overseas individual investors, subscribers include a number of domestic and overseas money managers, wealth managers, hedge funds, Market Wizards, and other advisory services/newsletters.

Trading Lessons
Introduction to the service (38:00)
Money management and risk management (20:27)
Bread and butter pullback (11:10)
Bread and butter pullback: Pt II (15:09)
Bread and butter pullback: Pt III (31:48)
Bread and butter pullback: Pt IV (30:16)
Bread and butter pullback: Pt V (1:41)
System R
Short-selling (25:53)
Wyckoff spring reversal (2:30) 
5-minute breakup test (8:01)
Screens (21:03)