January 16, 2022

After rallying into the 9/20 gap earlier in the week, the Nasdaq provided short-sellers with a gift as it rolled over sharply on Thursday, -2.51% on the session. The growth stock barometer rebounded Friday but remains extended to the down side.

The difference between the growth sector and the rest of the market is stark, and is best illustrated by comparing the above chart with the following one of the S&P. Not only are the S&P's 9 ema and 20 ema above the 50 ma - unlike those of the Naz - but the S&P is just a stone's throw from the 50 ma.

The ramification of this divergence between the two main indices is that the S&P is the leading index. Thus, we should be focused on the S&P stocks for longs and the Nasdaq stocks for shorts.

Our five "short ideas" for Thursday's session (including two inverse ETFs) worked out well, thanks to the magnitude of the Nasdaq's Thursday decline. All took between 1R and 2R in profit that day. The nice thing about the short side is that the gains happen quickly vs. the long side. With that said, for the future we should not expect to see such a pronounced downdraft in the average occur on our entry day.

Correction: In a video last week, it was stated that 10 of the last 11 shorts were 1R+ wins. Actually, it was 9 of 11. After Thursday's five shorts, it is now 14 of 16, or 88%. While I would not expect to see this percentage maintained in the future, it does illustrate what is possible when the three legs of the stool - Nasdaq, industry group, and individual stock - are all in synch.

On the long side, a few oil & gas explorers are basing and may offer opps in coming days or weeks. The other groups leading are the banks and foods. Neither of these has an attractive reward-to-risk ratio.

On the short side, the growth sector is extended to the downside after last week's waterfall move. Most likely we will need to wait for another rally in order to see anything shortable materialize.

In summation, cash is king.

Kevin Marder

Comments

Subscriber: NICE CALL ON THE SHORT SIDE!! No response necessary. Service paid itself off many times over.

Subscriber: I just want to report that I bought SQQQ exactly when NDX touched the falling 20d MA on Wednesday (1st buy) and after 1h trading Thursday (2nd buy). My win is huge. I did this because I thought this was your tip 3-4 days before ("We are extended, we wait for counterreaction, and then we buy SQQQ"). This sounded so reasonable for me, that I did it, despite your email. I 100% agree with your video today: 1-2 huge winners - that's all one needs. I profit from your experience & well-thought strategy a lot. 

KM: To be clear, when I relay thoughts in the reports or videos, they are not actionable until they appear in the Focus List. And an appearance on Monday does not mean it will be actionable during Tuesday's trading. Although your trade worked out well, you violated the trader credo of "trade what you see, not what you believe." Just a heads-up.

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