A portion of this report was taken from Monday’s private blog post for premium subscribers.
Stocks are in, at best, an 8%-12% intermediate-term correction precipitated by fears that the coronavirus will induce an economic slowdown.
On an intraday basis, the Nasdaq is off 9.3% from its high and the S&P 8.4%.
It is important to recognize that no one knows when the market will bottom. Our method of general market analysis is based on very little besides the price/volume behavior of the averages and the action of the leading stocks. For the past 30 years, this has worked well at keeping in synch with the market.
As noted in the Monday blog post, “We can expect a rally attempt over the next few days. The game plan is to refrain from taking any new positions until the dust settles.”
The rally attempt occurred this morning and lasted for all of 90 minutes before selling kicked in. This left the Nasdaq with a small gain of 0.17% for the day.
In a market like this, there is rarely a place to hide. Even gold stocks, which sometimes thrive in tumultuous environments, can be the victims of selling simply because large investors need to raise cash to meet margin calls or redemptions. An area that stands out for its relative strength is the biotechs, which appear to be forming a head-and-shoulders continuation pattern.
One name that stands out from its liquid glamour brethren is Netflix (NFLX).
While a 3%-5% short-term reaction can sometimes be played by buying the names that hold up best once the dust clears, this is not a strategy that is advisable during an 8%-12% intermediate correction. So while NFLX does set up, when they raid the brothel, they usually get everyone, including the piano player. Others that hold up well include Zoom Video Communication (ZM), Everbridge (EVBG), Cloudflare (NET), and Smartsheet (SMAR). None of these warrant purchasing due to general market conditions.
To review, we played the Nasdaq’s Oct. 3, 2019-Feb. 19, 2020 move correctly by turning bullish Oct. 10 and going long the TQQQ on Oct. 22. Staying long TQQQ from Oct. 22 until price touched the 20 ema last Friday allowed us to capture 65.2% of the Oct-Feb move in TQQQ.
You may recall that my target for trading a swing is 60% of the move. So this met expectations, though it was not just one swing but a number of them combined. Total gain from entry to exit: 63.3% in four months’ time, or about 189.9% annualized.
I expect to use the same approach with the TQQQ or SQQQ (inverse of TQQQ) once the coast is clear and a signal is given by the market, either up or down.
I tend to be early in, early out. This fits my unique makeup. It also recognizes the speed with which a market can come off and wipe out 14 days of TQQQ gains in three sessions, as was the case here.
Getting on board the emerging leaders in the wake of a correction or bear market is far and away the most profitable way to play the game. Let’s keep our heads up and realize that market corrections or bear markets spell o-p-p-o-r-t-u-n-i-t-y.
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.