February 23, 2020

Last week was all about the coronavirus. Earlier in the week, word from China was that the number of infected citizens had peaked while deaths were still rising. This helped spark Wednesday's rally. Later in the week, this line of thinking was put to rest as other countries, primarily South Korea, reported rising numbers of cases.

Technically, Nasdaq volume on Thursday and Friday was the heaviest on a down day in five months.

A report by the Nikkei news service referenced a survey by two Chinese universities indicating about 85% of small and medium-sized businesses in China -- which employ about 80% of China's population -- will run out of cash in three months. This story, which came out over the weekend, is believed to have contributed to Sunday evening's downdraft in Nasdaq futures.

It is to be remembered that the market dislikes uncertainty. As soon as this fog of uncertainty lifts, whenever that is, the market will return to its primary emphasis being on interest rates and earnings, in that order. The market will generally turn up at what seems to be the least likely time. This occurred in late January after just two days down in the Nasdaq. Then, there was no good news on the virus story, but the market was smart enough to sense the worst was behind it. Since then, new information has been released and the market will respond to it accordingly.

We were fortunate for the market to recently present us with attractive pattern setups in about five gold mining stocks plus the 3x gold mining ETF (JNUG). Late in 2019, it was pointed out in a few videos that gold appeared to be forming a bottom following an intermediate-term decline. This was not based on a crystal ball prediction, but on a pattern of lower highs and lower lows turning into one of higher lows and higher highs.

While this service is not long-term oriented, those who are holding some of these gold positions might consider giving them plenty of room to fluctuate in order to participate in a longer-term move if it so presents itself.

Otherwise, as discussed in recent videos, we should be using our moving averages like the 9 ema, 20 ema, and 50 sma as guides on when to exit winning positions.

In the meantime, very few attractive pattern setups are on the growth-stock speculator's menu. Let's be patient and take things day to day as we recognize there is no better substitute than being in synch with the market.

Among the names, Aurinia Pharmaceuticals (AUPH) is a development-stage biotech concern. This means there are no earnings or revenue. A 99 RS stock in a 98 RS group with an A+ acc/dis rating.

In December, the stock soared 79% in one day on earnings, with volume being close to 15x normal. As the chart shows, the gap day had a poor close and then the next day undercut the gap day low by about 3%. Thus, a gap buyer using a 1%-2% stop below the gap day low would have been stopped out.

With this type of setup, one must always plan for the possibility of being stopped out on a takeout of the gap day low. However, the second day after AUPH’s gap day saw volatility contract with good close. This provided a setup for reentering long the next day. On the next day, there was a 1.5% opening gap which is acceptable since this was a position trade, not a swing trade.

All told, the stock went from 5 to 20 in six weeks. Since then, price has consolidated for eight weeks with 22% depth. It can be taken above the pattern high of 21.93. Earnings expected Mar. 17 (unconfirmed).

Axsome Therapeutics (AXSM) is similar to AUPH above both fundamentally and technically. It is a development-stage biotech outfit and is a 99 RS stock in a 98 RS group with an A+ acc/dis rating.

Technically, in December the stock jumped 71% in a single session on earnings, volume coming in at 7x average volume. In this case, on the gap day price closed about 10% above the intraday low, making it difficult to establish a position with attractive reward/risk.

However, the next session saw price successfully test the gap day low by holding above it and closing well as volatility contracted. For an aggressive player, this provided an entry the next day, though using the gap day low as the basis for a stop-loss level was out of the question since it was so far away from the entry.

(Trading buyable gap-ups in leading stocks can be a worthy addition to a trader’s toolkit if one has the time to jockey for the right entry. Sometimes this means using a second entry.)

AXSM has formed a seven-week consolidation with 27% depth and can be taken above its 109.94 pattern high. Earnings expected Mar. 12 (unconfirmed).

Okta (OKTA) is a security software firm with losses anticipated for this year and next. Revenue growth, however, has been 49% and 45% in the recent two quarters. An 82 RS stock with a C+ acc/dis rating.

OKTA forms a seven-month cup pattern and cleared the entry pivot of 141.85 (the pattern high) Wednesday. It can still be taken above Wednesday’s high of 142.98. Earnings expected Mar. 5 (confirmed).

SSR Mining (SSRM) is a Canadian gold and silver miner which was a Focus List buy idea for Dec. 24 as it broke out of a base. It then went on to form a base-on-base of 11% depth and eight weeks’ duration. It can be taken above the pattern high of 19.42. Earnings expected May 21 (unconfirmed).

In sum, two days of the heaviest Nasdaq volume on a down day in five months represents a change in the market's character. Let's be sure to focus on the market's action itself, as this has historically been far and away the most profitable way to play the game.

Kevin Marder

For intraday ideas and analysis: https://twitter.com/mardermarket

Unless otherwise noted, charts created using TradeStation. ©TradeStation Technologies, 2001-2020. 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.