A market that had been priced for perfection finally met its match beginning a fortnight ago in the form of a virulent back-up in bond yields. While the below chart of the Nasdaq shows an index tracing a six-day trading range, many speculative growth stock glamours have this week printed new lows for the move.
As noted on Twitter, the main differences between this 8.3% Nasdaq correction and the 12.8% one in September/October are that 1) this one is occurring amid a market led by cyclicals, not growth, and 2) this one started with the breadth of the decline comprising more stocks, which was noted in a video two weeks ago, and is taking very few prisoners. In other words, very little is left standing.
As previously mentioned, growth stock speculators have become spoiled over the past 20 years. During this period, all bull phases excepting '06-'07 were led by growth stocks. This was due to an abnormally extended period of low interest rates and low inflation. It was the ideal backdrop for growth issues.
Now, however, it appears that the market is concerned with inflation, at least if one looks at the swift back-up in bond yields and commodity prices like copper and steel and crude oil. The latter has risen from $8 to $63 a barrel inside of 10 months. For a stock market that is not even one year into its bull phase, this snapback in yields and commodities suggests the life of this bull will be considerably less than the roughly four years of an average bull.
Meanwhile, in a game of musical chairs, we were able to find a few chairs to sit on when the music stopped over the last week. Specifically, we had a stopout in Digital Turbine (APPS), a breakout; and three winners using pullback entries, two of which were from Sunday's report. The third pullback entry was in an inverse leveraged index ETF discussed in Tuesday's video for premium members.
The game plan will be to protect precious capital by staying in cash. This may or may not be augmented by some long cyclical exposure, depending on what the market gives us once an up trend resumes. Strong trends in the cyclical sector might be a plausible opp for using the aggressive pullback strategy á la what we just did with Ovintiv (OVV) and Vuzix (VUZI) -- both cyclicals -- among others over the past month.
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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.