January 17, 2021

The Nasdaq shuffled back and forth last week as a dearth of market-moving drivers put a lid on meaningful price movement. While it would appear that a sense of caution ahead of Wednesday's inauguration and its potential for violence contributed to the lack of vigor, lighter volume is normally a symptom of uncertainty.

And last week's volume was anything but calm.

At this juncture, the growth sector is viewed as ill-positioned for successful speculation as it relates to fresh-money buys. Just a half-dozen names are at all attractive, and none of these has a legitimate base, or price consolidation of at least five weeks in length. Since these stocks are 3.5 to 4 weeks into their basing patterns, some may become buyable in the near future.

While we have seen that a period of scant opportunity among growth leaders has eventually led to the averages correcting, this progression of events does not always occur right away. There is usually a lag.

Moreover, since the leadership over the past few weeks has been from financials, transports, energy, and healthcare, these sectors could bolster the averages should growth soften. This could not have been said over the past several years, seeing as how growth was the undisputed leader then.

Thus, the view here has nothing to do with general market direction which remains fine both at the surface and subsurface. Regarding the latter, long-term signposts like breadth and interest-sensitive groups are blemish-free.

Reflective of the absence of genuine bases, the Focus List is empty for the moment. The following names are believed to be the most attractive pattern setups in the growth sector, and are illustrated for those subscribers interested. Since these are not Focus List actionable issues, the usual comments on each chart have been omitted.

To enlarge the following charts, please click on them. For newer subscribers, the gray arrows indicate previous Focus List buy idea entries.

Digital Turbine (APPS)

Farfetch (FTCH)

Innovative Industrial Properties (IIPR)

1Life Healthcare (ONEM)

Par Technology (PAR)

Trupanion (TRUP)

In sum, the averages are in good shape. What with numerous leaders either materially extended or, in the case of the softwares, breaking down, the growth sector is a victim of its own success and does not offer the 5-week-plus bases which we prefer. For the time being, then, it makes sense not to press the envelope in terms of fresh-money buys.

Questions & Comments

Q: We have seen strong performance from the semiconductor equipment sector, e.g. AMAT, ASML, KLAC etc since the Nov. 5 follow-through day. I am wondering why there's no representation from this sector in your watch list.

A: 1) I was aware of the semis at the time but made a conscious decision not to favor them because they failed to pass my relative strength filter, which you may recall was comprised of a stock's % move since the Mar. 23 start of this bull market. At that point, AMAT was +91%, ASML +114%, and KLAC +103% vs the 200% minimum I was looking for (currently it is more like 250%).

2) At the time, the RS ranks were substandard. Even now, after their recent moves, they are AMAT 84, ASML 79, and KLAC 81. The three MarketSmith semiconductor groups have RS ranks of 70, 69, and 68.

3) Given the above, the only instance the semis would look relatively attractive, and hence buyable, would be if the growth sector did not offer suitable merchandise. At the time, it did.

4) It is easy to look back with the benefit of 20/20 hindsight and see what was missed. I am sure you are aware of this as I have mentioned it from time to time. This can be instructive as it allows us to see areas with room for improvement. In this case, however, I would have followed the process the same as I did.

Subscriber: I wanted to share a success story one of your new customers had. I recently referred a friend to your service, and emphatically emphasized he learn your risk management system before taking any trades. He took his first trade two days ago and after setting his stop sent me a text “I have no risk. It’s all within the plan.” What a liberating way to articulate and conceptualize risk management. This is my new risk management mantra and made me think of your system, as well as that recent Twitter share of yours: 

“I take pride in the fact that I can be wrong ten times in a row. I understand that my edge comes from the fact that I have become so good at taking losses.”@PeterLBrandt Market Wizard

I love this stuff and appreciate the opportunity you provide for us to constantly evolve (pullbacks, etc.) and mature as traders. 

KM: Thanks very much for sharing this with me and for having the confidence to refer a friend to the service. Yes, it becomes more interesting the more we grow as traders, similar to how a musician feels when he or she becomes a better player, and they want to play even more. It is good to hear of your evolution as a trader.

Kevin Marder

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

All stock charts created using MarketSmith unless otherwise noted. ©2021 MarketSmith, Incorporated. All other charts created using TradeStation. ©2001-2021 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.