February 2, 2022

The averages managed to stay buoyant Wednesday following a harsh ADP employment number, but most stocks closed in the red. Following three days up with good closes, the Nasdaq was entitled to a pullback. Today was something less than that, but a 1.8-to-1 advance-decline ratio in favor of decliners cast a shadow on the day's proceedings.

Ditto for the NYSE A-D ratio which was 1.2-to-1 in favor of decliners, much worse than an S&P up 0.94%.

The ADT report showed a 301,000 decline in jobs during January, far below the 220,000 additions expected by Wall Street, a whopping 519,000-job miss.

As discussed here and on Twitter, the thesis for an intermediate-term advance rests on the Fed engineering a soft economic landing via several rate hikes beginning in March. The Fed does not have a good track record of enabling such a thing since they tend to overshoot which lands the economy in recession. We would expect a slowing economy in H2 to allow growth stocks to once again lead the market higher.

Otherwise, today's poor breadth figures and this evening's 2% drop in Nasdaq futures brings the short side into play again. Unfortunately, the prospect for a substantial opening gap down Thursday has removed SQQQ and SARK from being short ideas on our Focus List. (Trade-through entries are preferred, or the setup is negated.)

We have three other short ideas, discussed below. Alas, they are also slated for a gap down opening which would likely put them out of play for us.

The following names are believed to be the most attractive long ideas for our strategy of speculation in the $13+ market.

APA Corp. (APA)

Ovintiv (OVV)

The following are short ideas.

Applovin (APP) can be sold using an entry pivot of 64.85. Earnings ETA Feb. 16 post close (confirmed).

Sea Ltd (SE) can be sold using an entry pivot of 144.35. Earnings ETA Mar. 1 (unconfirmed).

Tesla (TSLA) can be sold using an entry pivot of 889.41. Earnings ETA Apr 27 (unconfirmed).

In summation, it is possible that the averages are readying another leg down. Our three short ideas cover that possibility, at least for Thursday's session. Other long ideas represent what are believed to be the most attractive oil & gas explorer issues at the present time. The shippers and fertilizers are the only other groups of interest on the long side. There is no need to be involved in this market at all. Cash is still as attractive as it was when this market descent began in November.

Kevin Marder

Subscriber Comments

Subscriber: Thanks for your excellent work.  We have a big move off the bottom but lots of volatility and stocks have jumped up but now dropped huge and will take a lot of back and forth base building before buying.  SQ and UPST are getting killed. You preach patience which is important to wait for proper multi week bases to form. People are rushing things but you have a calm, patient approach to wait for proper bases and breakouts to occur. I feel that I am now understanding the logic and mindset. Thanks.

KM: Thank you for your valued input. Glad to hear things are sinking in. As I like to stress, the main thing is that you and other subscribers understand why we are doing what we are doing. It sounds like you are on that wavelength.

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Money management and risk management (20:27)
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Bread and butter pullback: Pt II (15:09)
Bread and butter pullback: Pt III (31:48)
Bread and butter pullback: Pt IV (30:16)
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