March 8, 2020

Stocks offered a semblance of improvement Friday as the Nasdaq found support at its 200-day line, closed well, and volume receded from its level of the prior week. But as of this writing, the Nasdaq future is off 4.17% in Sunday evening trade. This would place the cash index in the vicinity of the Feb. 28 low were it to open Monday at around this level.

The chart below shows how Friday's volume decreased slightly from that of the day before the Feb. 28 low, marked "1." This constitutes a positive test of the Feb. 28 low. However, this is a moot point unless the market firms up quite substantially between now and Monday's open of the cash index.

Sector leadership has moved decisively to the defensive camp. This means consumer staples, utilities, healthcare, and REITs (real estate investment trusts). Growth is showing outperformance overall, though this means sideways to slightly lower revaluation, and not up, in most cases. This is a plus, and suggests growth stocks may be a leadership segment if the market were to bottom anytime soon.

Among industry groups, a positive is the slight outperformance in the homebuilders. Though they are nonetheless declining in price, if the market was truly discounting a recession, it would be logical that this group lag the S&P, which it is clearly not. The housing sector's importance is that it typically leads the economy into and out of recession.

As noted on Twitter recently, the market will likely bottom at a point that few people would expect, i.e. at a point that is far from obvious. Expecting the news to be pristine at the bottom is unrealistic and does not take into account the way the market actually works. "It gets darkest before dawn" is an apt metaphor here.

The market's behavior continues to support a full cash position, excluding legacy positions that show a profit and hold up. The extreme volatility and high overnight risk make holding an inverse ETF such as the SQQQ a different proposition than we experienced with our TQQQ buys on the way up. For instance, a long entry in SQQQ on Friday was rendered moot by the 10.1% gap up.

The following are some names we are watching in the event the market firms up and becomes buyable. They do not set up today, but may with some additional work put in. Click on the chart to make it larger.

Everbridge (EVBG)

Dexcom (DXCM)

Clarivate Analytics (CCC)

Sea Limited (SE)

Vertex Pharmaceuticals (VRTX)

Docusign (DOCU)

In sum, cash is king.

Kevin Marder

For intraday ideas and analysis:

Individual stock charts created using MarketSmith. All  other charts created using TradeStation. ©TradeStation Technologies, 2001-2020. 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.