July 19, 2020

The Nasdaq Composite is locked in a four-day trading range while lagging the S&P in four of the last five sessions. This can be viewed as a mild positive, as it has allowed the moving averages to catch up with price.

As discussed recently, virtually all leading growth stocks are extended in price above recent support levels and no longer offer attractive entrance. Bill O'Neil has said that after a follow-through day (FTD), leading stocks tend to break out of bases for the next 13 weeks. As it so happens, the Apr. 6 Nasdaq FTD occurred 15 weeks ago and it has been during the past week-and-a-half that the number of actionable issues has dried up. So Bill's comment has almost perfectly lined up with the reality of the current market.

This past week saw money rotate out of growth and into value/cyclical, which has lagged for most of this four-month bull market. Gold and silver advance in price, which is expected to continue to boost our two triggered trades in the mining group, Pan American Silver (PAAS) and Wheaton Precious Metals (WPM). 

Several other miners, such as Newmont (NEM), Barrick Gold (GOLD), Agnico Eagle Mines (AEM), Kirkland Lake (KL), and Franco Nevada (FNV), are forming constructive bases and in some cases are ready to break out. However, these have RS lines that are lagging price into new-high ground. For this reason, they are not on the Focus List, which is empty.

Meanwhile, vaccine developer Novavax (NVAX) is up 125% in the four weeks since becoming a triggered trade. It is the Focus List's sixth triggered trade to reach the 100% milestone in this bull market. Several others are in the 70%-80% range.

While the Focus List is devoid of actionable issues, the two names that come closest to making it are Lemonade (LMND) and Lululemon Athletica (LULU). LMND could be taken by a very aggressive operator on a breakout of the two-week IPO shelf it is forming. As for LULU. it is a higher risk setup because price went up 152% without as much as a shelf, let alone a base, being formed. It is unclear, then, if a breakout will succeed after just a five-week pattern following a 152% rise for a relatively mature company.

In sum, with a market devoid of actionable issues, our Focus List sits empty. Sometimes during times such as this, it is preferable not to take the one or two setups that do appear. This is viewed as more of a time for patience than anything else.

Q&A

Q (I of II): First I want to say thanks for your incredible service. You've been right on target since the March bottom, just as you were when I first encountered your work in March 2000 as the NDX cracked. Your cautions on tradingmarkets.com then alerted me to get out of the market and preserve my gains.

Given the study you read that confirmed your sense of how important big revenue gains are for big winning stocks, I was wondering if it would possible without too much work for you to add the last couple of quarters of revenue gains for each stock to the watchlist spreadsheets. I jot down the revenue numbers when you show them in the videos, but it would be nice to have them in the spreadsheet if possible when we're deciding which trades to take or not.

Thanks again for all your unbelievable help.

A: Thank you for your support. I have added the most recent quarter's sales growth to the Watch List file. I have also asked MarketSmith if they can allow for "Sales % Growth 2 Quarters Ago" to be a filter that can be screened for.

Q (II of II): Thanks so much for adding the sales column to the Watchlist, Kevin. I meant to write back earlier about that. I also wanted to say that I have found the recent discussions and the matrix on options for exiting winning trades to be very helpful. Anytime you can talk about your thought process, like you did with LULU tonight, helps us all sharpen our own thinking.

On APT, I've noticed that in each of the last three months now, it suddenly shoots up mid-afternoon on the Thursday before options expire. Maybe some players are gunning it for that purpose. It went right back down from $17 in May, but there was some follow-through for several days in June. Hopefully, they'll be some more this time with the need for masks.

A: Thank you for your input. I will endeavor to “micro analyze” more stocks like I did with LULU.

Q: Hi Kevin! I have been trading since 1992 and I use slightly different moving averages, specifically the 23 DMA and the 63 DMA. Why? Because they have some root foundations in logic. 22 days are the trading days in a month and 63 day is for a quarter, (with holidays). I find that stocks will bounce off these lines more often than the 20 and the 50, (which seem to be picked out of thin air for their convenient round numbers). Thoughts?

A: To be precise, it is generally acknowledged that there are 252 trading days in a year, or 21 in a month. This is a reason why the 21 period is so popular. That, and it being a Fib number. A few like to use the 65 since they feel a good number of declines will stop at this level. I don't think it much matters what we use, as long as we are consistent in what we use and don't change from one day to the next.

As well, there is very little difference between the 20 ema and 23 ema if you plot them both on a chart (not sure if you use sma or ema). Anything in the 18-21 range, and this could be extended to the 23, is an xlnt descriptor of the short-term trend. Thank you for the question.

Kevin Marder

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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.