July 22, 2020

Though the Nasdaq remains buoyant as it trudges sideways in recent sessions, the growth barometer has nevertheless lagged the value stock-dominated S&P 500 in eight of the last nine sessions. This comes as market participants become more comfortable with the economically-sensitive names in the larger index.

This rotation comes as the six-biggest Nasdaq stocks, FAAMG + TSLA, which comprise about 49% of the Nasdaq 100, drift sideways ahead of a deluge of earnings reports expected in the next two weeks. The overall market action is viewed as healthy and necessary in order to avoid a frothy situation that would ultimately end poorly.

 

 

Most everything in the glamour complex forms a two-week ledge. This type of pattern does not meet our criteria for an attractive reward-to-risk setup. I have learned over the years that it seldom pays to buy the two or three issues that set up and break out when nearly everything else treads water, or worse. On the bright side, two-week ledges can become five-week flat bases in short order, obviously in another three weeks' time, assuming the market is willing.

Bill O'Neil's book states that one can catch a shift in market tone with this easy test: If one's last four or five trades are stop-outs, perhaps the market is not conducive to breakouts.

As well, this month's win-loss record reflects this shift.

Wins: 10 (45%)
Losses: 12 (55%)
Avg Win: 15.8% (MFE)
Avg Loss: 6.0%

This compares with a 72% win rate and 6.8 profit factor that was shown in the first trade review covering the first two months of this bull market.

Further, most Watch List names show two if not three distribution days in recent action. A third distribution day in a stock is usually cause for caution. Let's see whether this recent trend is a temporary phenomenon or if it continues.

Reflective of the current environment, only two names make our Focus List. These are discussed below and are for those players who are very aggressive in nature.

To expand the following charts, please click on them.

Inovio Pharmaceuticals (INO)

XP (XP)

In sum, the growth sector is going through a well-deserved resting period following three months of running. There are virtually no pattern setups that are technically attractive. For all but very aggressive players, fresh-money buys should be placed on hold until conditions warrant.

Q&A

Q: Hi Kevin, hope all is well. Quick question, did I see that you were going to start a quant oriented option program? Knowing you, it will be impactful and fun to trade.

A: Thank you for the vote of confidence. I believe I said there might be "a few" option ideas for this earnings season. I did not say there would be a "program." However, I did not receive the model until 3-4 weeks after I expected to receive it, so it will take some unpacking first.

Q: Thanks for your stop loss advice which has been very beneficial. I set stop loss orders for the next day based on the closing level of the 9, 20 or other moving averages. After a strong advance following opening the next day, the ma is often significantly above the level I used. Do you advise adjusting the stop loss order intraday in such cases? In other words should I be continuously trailing the slo?

A: You are welcome. I prefer to move stops intraday as needed, but this is a matter of personal preference and there is no right answer. Thank you for your question.

Kevin Marder

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

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.