March 22, 2020

The past five days were mildly encouraging as the Nasdaq was at least able to engage in sideways, back-and-forth, backing and filling, otherwise known as basing. However, Friday was ominous as volume was the heaviest for a down day during this cycle, while price closed poorly.

Unfortunately, on Sunday evening the Nasdaq future (NQ) took all of four minutes to drop 4.9% after its 6 p.m. ET open. This left it in a limit-down situation. At this writing, it is off 4.0%. At the heart of the sell-off was a Congress that has yet to agree on a stimulus package to assist families and businesses.

Long positions are clearly out of the question at this point.

The ProShares UltraPro Short QQQ (SQQQ) would ordinarily be the favored vehicle to capitalize on this weakness due to its 3x inverse behavior. As well, it allows those with tax-exempt retirement accounts to participate. However, as the chart below indicates, its seven-day price action has been directionless, choppy, and exceptionally volatile. For the latter, its Friday range was 22.7%. A day with 10% volatility is considered quite high, but 22.7% is off the charts.

Thus, SQQQ is not available to us at this time.

To compound matters, the NQ future is suggesting a gap-down open of at least few percent, though overnight futures are not always an indication of where the cash market will open.

Continuing with the short theme, Nvidia (NVDA) sets up as a shortable rally in a downtrend and can be shorted below Friday's low of 205.13, with a stop at 216.83 and 1R target of 193.43. Trade risk is 5.8%.

Tesla (TSLA) sets up as a shortable rally in a downtrend and can be shorted below Friday's low of 425.79, with a stop at 452.28 and 1R target of 399.30. Trade risk is 6.3%.

In sum, for long-only players, cash is king. For long/short players, a number of opportunities present themselves on the short side. The NVDA and TSLA setups are two such opps.

Kevin Marder

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All 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.