August 9, 2020

Market participants unloaded a decent portion of the growth sector Friday, while the rest of the market was flat to higher. The action suggested a rotation out of better performing, premium-priced growth issues and into value/cyclical plays which are more sensitive to economic growth.

Meanwhile, our average Watch List component lost 2.8% vs a Nasdaq down 0.87%. Thirty-five percent of the 109-member Watch List gave back 4% or more. Within the growth sector, the losses were not concentrated in just one segment, though software titles absorbed more than their share of losses.

Four triggered trades which were opened last week were stop-outs in Friday's selling: Coupa Software (COUP), Pinduoduo (PDD), Roku (ROKU), and Wix.com. It is not a surprise to see the most recent breakouts pull back below their entries and/or fail when the market experiences a concerted drubbing in the growth complex.

On the bright side, a couple of last week's breakouts scored gains. Solar energy specialist Enphase Energy (ENPH) broke out of a cup-with-handle base on Tuesday, up 13% on +42% volume to finish the week 11% above the entry pivot.

And GSX Techedu (GSX) surged as much as 54% after clearing a three-week ascending triangle pattern on Monday. The action marked a buying climax for the Chinese educational services outfit, which succumbed to a high-volume outside day reversal on Friday amid a report from Citron Research that there might be fraud at the company.

There remain very few actionable issues at present owing to the growth complex being largely extended above recent support areas.

To enlarge the following charts, please click on them.

Amazon.com (AMZN)

Zoom Video Communications (ZM)

In sum, once again we are at a point where almost nothing in the growth sector shows an attractive pattern setup. During times like these, I normally put fresh-money buys on hold. At this moment, there is nothing to indicate that Friday's growth-stock malaise will continue, as a decent percentage of names held their own or lost minor amounts. Let's keep an open mind about what could happen either way and remain flexible.

Q&A

Q: I realize this is beyond the purview of the service so please feel free to ignore. We inherited some of the actual gold and silver metals (coins and an ingot) but don't really know what to do with them. I know both are going up but do you have any thoughts/insights on longer term prices of the actual metals? Part of me wants to just sell and be done with it b/c I have not once had any luck trading anything related to gold or silver. However I don't want to be too hasty. I've seen subscription services that do nothing but metals but they come across as very partial and seem to be in the pockets of the gold companies. That's just my cynical view though. Again, I understand if you're not able to answer. 

Still doing well with your picks though today has turned quite nasty. Even with the big drop I'm ahead for the week. Won't ever complain about that. Still looking for the news. Hope all is well.

A: It is nice to hear from you. Friday's jobs report was 15% better than the consensus Street estimate. Indications of better than expected economic growth such as this one tend to help value/cyclicals and hurt premium-priced growth stocks. I believe this is why the Nasdaq 100 is at the moment down 1.66% vs. the S&P down 0.48%. I like gold and silver longer-term because I believe the dollar may weaken due to so much printing of money, i.e. debt creation, to support the economy. But this must be corroborated by the technicals just like with growth stocks.

In my career, I have never previously been positive on gold - not even once. I would trust your judgment. If you like having some diversification in your portfolio, then it might be prudent to maintain a small position in physical gold and silver. Regarding your experience with gold/silver stocks, please see the following:

Results of gold stock triggered trades (Data for winners is expressed in MFE)

AEM +1%
FNV +22% +35%
GOLD -6%, +18%
KL +39%
PAAS -6% +29% -2%
RGLD -6%
SSRM -6% +1% -6%
WPM +12% +39% +23%

Wins: 10 (63%)
Losses: 6 (37%)
Total of wins: 219% MFE (146% with one-third haircut)
Total of losses: -32%
Avg win: 22% MFE (15% with one-third haircut)
Avg loss: -5.3%

As mentioned a number of times in the premium member videos, gold stocks can be volatile and should be allowed a wide berth with plenty of room to fluctuate. A longer-term horizon should be considered with the stocks, as compared with growth shares which are ideally suited for the intermediate term (several weeks to several months).

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.