June 26, 2019

The first inkling that all was not right with this market came in the form of a buy-the-rumor, sell-the-news reaction to last Wednesday’s Fed announcement. This occurred on Thursday and Friday, and was noted on the Twitter feed and also in Sunday’s report:

While some of this may be due to the noise surrounding [Friday’s] quad-witching, it is nevertheless a concern. Speculators might do well to exercise restraint with breakout entries until we begin to see some of them come out on volume and follow through. For the moment, pullback setups are favored.”

The selling, which was led by nearly every corner of the growth sector, obviously followed through this week.

The backdrop, which is not at all a part of our technically-based approach to speculation, nevertheless contains substantial geopolitical risk. Specifically, the market may be discounting (pricing in) the eventual failure of the U.S.-China trade talks to produce a concrete solution.

Throw in the now-looming possibility that a cornered Iran might lash out against Western interests in the Mideast, and it is logical that a certain amount of de-risking was sought by institutions.

In Sunday’s Focus List for premium subscribers, four names were mentioned as pullback entries for Monday. One triggered (Pinterest (PINS)), and almost immediately reversed for a stop out.

I exited my positions in COUP, SHOP, and MDB on Monday morning and am in cash. Subscribers should be in a similar situation, and should be intent on protecting any gains accrued during the June market rally.

There were no actionable ideas in the Focus List for Tuesday, while for Wednesday one pullback idea was mentioned, Beyond Meat (BYND). In BYND’s case, price gapped 6.2% higher on the open, negating the setup. (For pullback setups, a “trade-through entry” is preferred, whereby price must trade through the pivot, as opposed to gapping past it.) If the trade had been taken, the sell stop would now be moved to entry due to the precarious general market situation.

This was the first time “System B” has been used in the service. It operates on a mean-reversion principle such that when price is stretched a certain amount from its mean, it tends to snap back eventually. It will sometimes provide an entry when the other three pullback models won’t. This makes it valuable.

Among the names, the only issue of interest is Energy Bull 3x Shares (ERX). This sets up using System R, which is the strategy used for the equity curve and forward test shown in the public blog post here. The premise of this system is that momentum tends to be a leading indicator of price. While actually a pullback setup, it often appears to resemble a breakout of a 3-6 day range.

ERX can be taken above Wednesday’s 20.21 high, with a suggested stop pivot of Wednesday’s low of 19.33. If a trade does not trigger Thursday, the setup is negated.

In sum, the market is in a de-risking phase where growth stocks are being hit the hardest among market sectors. Let's protect precious capital by staying in a generous cash position until the market rights itself and new pattern setups present themselves.

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 Thomson Reuters. Expected earnings release dates provided by EarningsWhispers.