August 7, 2022

The Nasdaq spent the last two days of the week idling, which it needed to do in order for the MA's to play catch-up. Again, it would be a positive if price pulled back to the 9/20 gap so as to create some opportunities as well as allow the real leaders to stand tall.

Institutions are wary about whether the economy can land safely or descend into a recession. Surely, there are enough of the former to have been responsible for lifting the averages into their current seven-week rally.

The flip side is that there are enough of the latter who fear a more-damaging slowdown to allow defensive groups and issues to stay buoyant. This can be seen in charts of Cadence Design Systems (CDNS), Jack Henry & Associates (JKHY), Synopsys (SNPS)Repligen (RGEN)Monolithic Power Systems (MPWR), and O'Reilly Automotive (ORLY), as shown below. Click to zoom in.

These all have high earnings stability (i.e. low standard deviation of earnings over the past 3-5 years) which tells you they are being accumulated by defensive-minded participants.

Should defensives in general retain their favoritism for 6-12 months, they may end up with decent gains. I am hesitant to seek these out and add them to the Focus List because I have doubts about their attractiveness compared with staking out positions in, say, some of the Big Seven (Tesla (TSLA), particularly) and the TQQQ.

Not many issues have broken out and followed through materially. Sanmina (SANM), an electronic components maker, has performed better than most, and is up 9% in seven days.

Amid these cross-currents, there are practically no pattern setups worth our while.

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

Evolent Health (EVH)

In summation, large investors are unsure how the Fed's regime of a higher fed funds rate will play out. On one hand, the defensives are buoyant, while on the other, we see five of the Big Seven (AAPL, AMZN, MSFT, TSLA, NVDA) and the aggressive-growth ARK Innovation ETF (ARKK) hold their own.

We don't need to take a side in this "skirmish" because, as it turns out, practically nothing is really positioned to provide us with an attractive reward-to-risk tradeoff. Cash is still where it's at.

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)