May 10, 2020

Stocks hit the sweet spot of the seven-week bull market last week, with Wednesday, Thursday, and Friday showing real power up and down the growth stock corridor. Volume on the Nasdaq was brisk but not overdone.

We have seen the Naz pull back for a couple of days whenever price gets too far ahead of the 9 ema. This has been seen twice during this move and we are nearing that level now. The Nasdaq has retraced 78% of its bear market decline and is now just 7.9% from its prior bull market high.

Coming into 2020, a focus was going to be using pullback entries to enter position trades in levered ETFs. Like a cheetah lying in wait for its prey, we have been patiently waiting for a few of these levered ETFs to present attractive entrances. Last week, Focus List buys were placed on TQQQ, NUGT (gold miners), NAIL (homebuilders), and GUSH (oil & gas). Thus far, TQQQ (+10% in four days) and NAIL (+15% in four days) are meeting expectations. NUGT and GUSH are flat to slightly higher.

The challenge will be to allow these names plenty of room to account for their volatility in order to play them out as position trades, and not short-term moves.

The Watch List is now up to 96 names. In itself, this is a barometer of market health. Focus List buys have performed well, with a few reacting poorly to earnings reports, as can be expected. During one session last week, perhaps Wednesday, four were up 10%+. Please note that one 40% winner can make up for nearly seven 6% losers.

To expand the following charts, please click on them.

Freshpet (FRPT)

GSX Techedu (GSX)

Momenta Pharmaceuticals (MNTA)

Mongodb (MDB)

Nvidia (NVDA)

Pan American Silver (PAAS)

Royal Gold (RGLD)

Tandem Diabetes Care (TNDM)

In sum, the market hit its sweet spot for the seven-week bull market during the Wednesday-Friday period last week. While a distinct positive, price is close to an area above the 9 ema that has resulted in a short-term pullback over the past year or so. While we are not in the business of prediction, let's keep an open mind about what could happen in this historic bull market.


Q: First, your service has been fantastic.  It has been very helpful over the last six or seven months since I've been a subscriber. I'm reasonable fully invested with some excellent companies that could may turn out to be long term leaders. How do you handle situations like this when there a plethora of new opportunities popping up seemingly every day?   Good problem to have!  I'm sure others are in the same spot.  Maybe you could address on one of the videos. Thanks again for all your hard work.

A: Thank you for your feedback. I am pleased the service is a good fit for your trading program.

As each of us is wired differently, each of us needs to determine which kind of speculator we would like to be. Most of us seek to hold 5-20 positions when fully invested. Some find it difficult to limit themselves to the lower part of this range because they would like to kiss all the babies. Others prefer to target 5-7 names, and then will not hesitate to exit a position if a more dynamic actor comes along and offers a compelling entry. Of course, sometimes the grass does not turn out to be greener on the other side, and the replacement position may not pan out as expected.

That is the risk of changing horses in the middle of the race. I do that myself sometimes and am aware of the possible consequences.

There is no optimal way to handle this. One of my best periods was when I held 15-17 names, and this is discussed in the intermediate-term trading course in the education section of the Web site. However, that was an unusually powerful market chock-full of superb opportunities. Another successful period was in early '98, when I held a 50% position in Yahoo, a 50% position in America Online, and five other positions of 15% each.

For most people, a reasonable allocation is 10 positions of 10% each when fully invested. This should be achieved by starting with a half-size position and adding on if the position becomes increasingly profitable, e.g. the 50/30/20 method of pyramiding. This can be an effective risk mitigator.

I hope this answers your question.

Kevin Marder

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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 positions in NAIL, NUGT, and TQQQ, though positions are subject to change at any time and without notice. Estimate data provided by FactSet. Expected earnings release dates provided by EarningsWhispers.