August 24, 2022

The market is quiet this week as caution ahead of the annual Fed conference in Jackson Hole coincides with a spate of typical late-August vacations.

Institutions are gun-shy about taking meaningful exposure to growth amid much uncertainty related to inflation, bond yields, and, more recently, the Fed.

This manifests itself as a growth stock sector whose leadership continues to be sparse. Within the sector, biotech, solar, and alt-energy act best, but the depth of participation in these groups is quite thin. For example, there are only four alt-energy titles within 10% of their 52-week high. Among solars, there are just three within 10% of their high.

Small-cap leadership normally asserts itself early in a new interest-rate driven bull market. This occurs as institutions discount the end of a multiyear Fed campaign of tighter money 6-12 months yonder. (Large investors have no problem building positions in less-liquid, riskier smaller issues since they feel the cycle is just beginning.)

Yet as the following chart shows, the Russell 2000 index of smaller stocks is just barely outperforming since the June 16 bottom. This tells us the market is having a hard time fully getting its arms around the idea of an end to the current Fed rate-hike campaign.

Away from the growth sector, energy has begun providing some opps. The leadership has a different look to it. Whereas before, the oil & gas explorers dominated, other groups such as oil & gas - integrated and oil & gas - transport/pipeline are now participating. These groups are much less aggressive performers than explorers due to their more conservative business models. For this reason I have not been interested in them.

While most oil & gas breakouts have not shown impressive, 20% follow-through yet, a couple are added to the Focus List for more-aggressive operators. As a means of mitigating risk, volume confirmation on the breakout day is recommended.

Among the names, the following are believed to be the most attractive for our strategy of speculation in the $13+ market. Click to zoom in.

CF Industries (CF)

Chesapeake Energy (CHK)

DCP Midstream (DCP)

In summation, the accumulation window on growth stocks is still largely shut. Oil & gas stocks show the best tone as they complete basing patterns. Otherwise, a full cash position makes the most sense.

Kevin Marder

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)