July 12, 2020

Stocks continue to chug higher, though last week's pace of advance was slower than the prior week's. This is actually viewed as a plus, as it has allowed the moving averages to play catch-up to price. Despite the rise, volume tapered off this past week, though we would not read anything into this.

Stocks continue to be aided and abetted by the unprecedented amount of money creation by the Federal Reserve which is looking for a home. With fixed-income yields at microscopic lows, the investment of choice continues to be stocks.

The market has become a victim of its own success, however. For the time being, and thanks to the largely unidirectional market advance, there are very few pattern setups worthy of our attention. In fact, just two are discussed below. This paucity of opportunities has occurred a couple of times in this bull market. Each time, it was remedied within several days or a week.

A market largely devoid of setups is also sometimes a precursor to an eventual pullback. Indeed, this was one of the things that had me cautious in September 2018 and out of stocks by Oct 2, 2018, a day before the Nasdaq cracked and commenced a three-month bear market in earnest.

With that said, it is unnecessary to predict anything in the market. For general market analysis, a speculator has everything he or she needs in the price/volume behavior of the major averages and action of the leading stocks.

Meanwhile, the Watch List is at an all-time high of 126 issues, exceeding the prior high of 118 names in '18. It should be noted that a number of these issues are recent IPOs which have a ways to go before they offer attractive entrance. Premium subscribers are invited to scroll through the Watch List to see how barren our menu of pattern setups is.

To expand the following charts, please click on them.

Moderna (MRNA)

Zoominfo Technologies (ZI)

In sum, stocks are extended from recent entry points, resulting in virtually no attractive pattern setups. Nearly all leaders have been exploited for the time being. Fresh-money buys are not indicated at this time beyond those discussed above.

Q&A

Q: I am emailing to ask for some practical insights about stops for traders that may be trading relatively larger position sizes. I have noticed that if I try to place a market stop for a position of greater than approx 0.25% of a stock's average daily $ volume then I may get notable slippage. So am wondering how you would suggest practically handling a stop of say a position size of $1 million in a stock whose average daily traded volume is $20 million? Thank you in advance for your insight.

A: Thank you for your question. For investors using $1MM positions, I would begin by only considering stocks with a minimum ADDV of $300MM. Currently, there are 54 Watch List issues that meet this criterion. If slippage remains a problem, the minimum ADDV may be increased to $400MM-$500MM. At $500MM, there are presently 39 Watch List stocks.

An alternative would be to split a $1MM sell order up into two or three smaller sell orders. So instead of $1MM with a 6% stop, using a $333k order at 5%, a second $333k order at 6%, and a third $334k order at 7% would accomplish the same thing. I hope this answers the question.

Kevin Marder

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All stock charts created using MarketSmith unless otherwise noted. ©2020 MarketSmith, Incorporated. All other charts created using TradeStation. ©2001-2020 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.