Stocks continue to plow through everything in their path, including the pandemic, the Depression, and social unrest, with the Nasdaq sitting all of 1.6% away from officially becoming a bull market. It is logical to expect the Naz to encounter resistance in this area in order to release some of the buying pressure that has built up.
A cursory glance at the volume bars on the Nasdaq chart shows a majority of accumulation days vs. distribution days.
Bill O'Neil has said that leading growth stocks tend to break out of bases during the first 13 weeks after a follow-through day (FTD). We are in the eighth week since the Apr. 6 Nasdaq FTD, though this market has broken a number of "rules" both on the way down and also on the way up. Things seem to be compressed time-wise these days, so Bill's concept may not exactly line up this time around.
Regardless, the market is running thin on actionable issues. For example, the Sunday Focus List contained 15. After triggering eight trades on Monday, two on Tuesday, and four today, the current list has been whittled down to five after a few new additions.
To expand the following charts, please click on them.
Advanced Micro Devices (AMD)
Beyond Meat (BYND)
Ceridian HCM Holding (CDAY)
GSX Techedu (GSX)
In sum, the market continues on its merry way higher, courtesy of a campaign of Fed accommodation with more on the way and a glass-half-full belief that reopening the economy will lift the nation out of its economic depression. And depression it is, with fewer than one-half of Los Angeles residents actually having a job. As usual, we will continue to stick to our knitting and allow the market to tell its own story.
Q: One of the areas that I really struggle with is pyramiding into a new entry. I was hoping to use a real time example to understand your thought process on how you would handle an entry. I monitored SNAP today based on the nice cup with handle formation. I wanted to get in using the a 1/3, 1/3, 1/3 pyramiding scheme. I bought the first 1/3 when it cleared the high of $18.39 from 5/21 and the second 1/3 when it cleared the high of $18.46 from 5/11. What would your preferred thought process be on when the last 1/3 should be added? Your insight on how best you would have handled this trade (s) is greatly appreciated.
A: What you are using is not a pyramid because the largest tranche is not the starter tranche. The difference between the starter tranche's entry and the 1st add-on tranche's entry is only 0.38%. It should be more. Check out the 50/30/20 method of pyramiding. I have updated this public blog post and I suggest you read it by clicking here.
Q: When utilizing the 50/30/20 pyramiding scheme for entries, what is the preferred stop loss method? Do you use a 6% stop loss as an example calculated from the average cost on the 3 entries or do you calculate three different 6% stop loss exits based on the 3 stage entry prices? I hope my question makes sense, sorry for the confusion.
A: I have used both. The latter is a more precise way to do it. However it can be cumbersome to maintain a spreadsheet of, say, six different positions each with two or three stops for the various tranches. Here is my preference: I will take an average cost weighted by position size in $. My stop will be no more than 2% below this cost. If my position size is 12% or 16% of the account and I am stopped out at 2% below average cost, then my account risk is 0.24%-0.32%. My last tranche is put on at about entry + 5%, so the stop for all three tranches is about 7% below this.
Q: Outside of using daily and weekly charts, do you utilize any other time frame during the day? If yes, what are you utilizing these for?
A: I use 5-minute charts to fine tune entries and exits. They are also what I use to follow my positions during the day. However, I do not recommend this because their heightened price movement can encourage a trader to exit a position before he or she should.
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.