March 30, 2022

An extended market came in today, with the averages printing reversal bars. It is logical to expect further softness given a) the extended nature, and b) the reversal bar.

From yesterday's high to today's low, the Nasdaq has pulled back 1.8%. A reasonable estimate as to where this might go would be to the 9/20 gap, or the gap between the 9 ema and 20 ema, a 3%-5% decline from high to low.

Another scenario would be for the Nasdaq to give back little ground as the moving averages are given a chance to catch up to price.

The backdrop now features a flat yield curve, meaning the difference between the yield on 2s and 10s is zero. This usually progresses to an inverted curve, where 2s actually yield more than 10s. An inverted curve has most often led to a recession roughly 18 months down the road. This is because banks and other lenders cannot make a profit on loans when their cost of capital (shorter maturities) exceed their income from loans (longer maturities).

Banks will then stop making loans and instead invest their assets in Treasury bills. This dry-up in credit hampers an economic expansion and leads to recession.

Meanwhile, it is uncertain exactly how big of a role growth stocks will play in any market advance. Certainly, high inflation is anathema to growth issues. But the question is whether the market might discount, or price in, an economic slowdown in '23. This would help the growth sector relative to cyclicals -- as long as investors do not believe inflation will be worrisome then.

For the short-term, this market's true identity may not be known for a few days given that quarter-end window dressing is taking place. This occurs as money managers buy and sell holdings in an attempt to put the best face on their portfolios.

Friday will also present the monthly jobs report and the monthly purchasing managers survey.

There remains a scarcity of growth stocks in buyable positions. Unfortunately, the ones that do show relative strength and classic pattern setups are those with high earnings stability. These are more mature companies that are not growing sales and/or earnings at 30%+ which is our preference. Examples are Merit Medical Systems (MMSI), Cintas (CTAS), and Cognizant Technology Solutions (CTSH).

Exceptions have been Tesla (TSLA), Nvidia (NVDA), and Dutch Bros. (BROS), all Focus List buys.

Cyclicals dominate the relative strength rankings but are not technically attractive for our purposes.

The following names are believed to be the most attractive for our strategy of speculation in the $13+ market. To zoom in, click a chart.

Arista Networks (ANET)

On Semiconductor (ON)

In summation, the rest of this week presents the potential for higher volatility. Let's take things one day at a time. While our preference will always be growth, commodity stocks should continue to be the focus given their relative strength.

Kevin Marder

Trading Lessons
Introduction to the service (38:00)
Money management and risk management (20:27)
Bread and butter pullback (11:10)
Bread and butter pullback: Pt II (15:09)
Bread and butter pullback: Pt III (31:48)
Bread and butter pullback: Pt IV (30:16)
System R
Short-selling (25:53)
Wyckoff spring reversal (2:30) 
5-minute breakup test (8:01)