Stocks are in their second, 8%-12% intermediate-term correction of the post-Christmas bull market. Thus far, the Nasdaq is off as much as 8.1% on an intraday basis vs. the 10.8% of its May correction.
The O’Neil follow-through day concept (FTD) is best used following a market correction of at least 8%. Empirically, it tends to lose its effectiveness when used with shallower pullbacks. The view here is that, while an FTD has value, it is not to be relied upon as a sort of magic potion in the way many use it. We will watch to see if one develops.
It is to be remembered that market health is best judged by the quality of a rally after a correction, when volume, breadth, and leadership can provide clues.
On this score, although the Watch List has been whittled to 48 names from the 63 of the Nasdaq’s high day on July 26, a good chunk of growth-stock leadership remains in good shape. To wit, 39 titles stand within 10% of their 52-week high.
There are no pattern setups related to breakout plays. As for pullback/swing setups, there were a handful of these in the Watch List which would have become triggered trades on Tuesday and Wednesday. However, these were not considered actionable since they occurred on Day 1 and Day 2 following an 8.1% Nasdaq plunge in just six sessions.
And on some level, we are not interested in just buying setups in isolation. There has to be a healthy respect for what the averages are also doing. As well, this has nothing to do with insisting on seeing an FTD before taking fresh-money buys.
When pullback/swing setups first became a regular feature of the service on June 12, that session was a whole seven sessions into the June/July advance. Compare that to the current situation where the Nasdaq is just into Day 2 of a rally. And those pullback/swing entries clearly paid off during the June/July advance, especially early on when breakout setups were scarce -- that is unless one wanted to buy the abbreviated, v-shaped patterns that were available. The service resisted that temptation by limiting v-shaped buys to one: EVBG.
The point is there is no rush to put on fresh-money buys. At this juncture, there are no actionable pullback/swing setups even if the market setting was different.
For your interest, the charts below of Clarivate Analytics (CCC), Chipotle Mexican Grill (CMG), NeoGenomics (NEO), and Shopify (SHOP) are among the ones which would have been actionable had the general market setting been different. They are shown for your interest, but are not actionable at this point.
In sum, there are no setups that are considered actionable. We will be patient and wait for the right pitch at the right time. The right pitches arrived at the wrong time after just 1-2 days up after an 8.1% correction in just six days.
From a subscriber
Kevin – For the past three years my account had suffered from numerous boom-bust cycles, as I ran my account up and then continued to aggressively over-commit, after periods of outperformance, when market conditions were no longer favorable when feeling overconfident. The subsequent hammering to my account balance then had the effect of making me shy to pull the trigger when conditions were again favorable. This resulted in late entries and further drawdowns.
Your coaching on pull-backs and position sizing have allowed me to feel confident and secure in minimizing risk while putting enough of an initial position on to make the trade worthwhile. Your consistent authenticity regarding the tenor of the markets and the opportunities provided have helped me to reflect upon and manage my own approach to risk and saved me a lot of money and heartache!
I have had two significant periods of out-performance this year and have kept my gains this time.
As an example, between July 10th and July 22nd, I legged into three separate trades that boosted my account equity by 10%. I raised stops, sold some into strength, and when I felt conditions were appropriate sold out. I followed my rules and went to cash on July 29th and rest there comfortably.
I am spending the time out of the markets reviewing all trades from the past three years. I have not begun the full chart analysis but every now and then as I update spreadsheets I take a peak at a chart of an old trade. When I see the ones from one or two years ago I shake my head and can't imagine what I was thinking, but then again I have to remind myself that I wasn't aware of some of the tools that are at my disposal now. It is sometimes painful to look back on past mistakes (so painful that one is tempted to ignore or bury them) but with success comes confidence and the ability to put prior failures into perspective and profit from them.
Below, I quote from one of your recent newsletters. The quote reflects your insight, candor and the value of the service:
JULY 31, 2019
"The stock market continues to represent above-average risk.
In light of the above, the position trader of breakouts no longer has the wind at his or her back. Accordingly, risk should be reduced by abstaining from fresh-money breakout buys. Those holding open positions should manage each on a case-by-case basis.
In sum, muted Nasdaq volume, a number of failed breakouts, and only a few pattern setups make the decision to suspend fresh-money buys an easy one. Let’s insist on evidence that the tide has turned before we embark on more breakout buys. The facts are clear."
Worth – every – penny.
K.M. Thanks very much for taking the time out of your day to share how the service is helping you. I am happy to hear you have retained your gains during the two periods you mention. This can go a long way to instilling confidence. I think many of us go through the same emotions you describe when we review past trades.
As for what you read on July 31, 2019 in the Marder Report, I prefer keeping the general market discussion within each report to the bare minimum because I have found over the years that "less is more" when it comes to trading. E.g. over the years this is why I dispensed with things like sentiment indicators and counting distribution days. Thank you once again.
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Unless otherwise noted, charts created using TradeStation. ©TradeStation Technologies, 2001-2019. 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 Thomson Reuters. Expected earnings release dates provided by EarningsWhispers.