The day following the Sunday report, Monday, saw the growth leaders buckle, break down, and otherwise provide important feedback on the legitimacy of the advance off the Oct. 29 lows in the Nasdaq and S&P. Moreover, the Naz broke the 7255 level mentioned as being critical to the authenticity of the uptrend.
Specifically, Attunity (ATTU), Alteryx (AYX), Caredx (CDNA), Tableau Software (DATA), Dexcom (DXCM), Elastic (ESTC), Etsy (ETSY), Canada Goose (GOOS), Healthequity (HQY), Mongodb (MDB), Omnicell (OMCL), Twilio (TWLO), and Workiva (WK) broke out and then failed, falling back into their bases.
These were all names on the watch list. Obviously, anyone taking them on the breakout was stopped out. My sole position, Staar Surgical (STAA), was stopped out. One did not get substantially hurt as long as a) one did not commit a large portion of a portfolio to these issues, especially if a junior-sized starter position (half normal or less) was used, as recommended, b) one honored a reasonable stop-loss, and c) one’s entry was close to the pivot point.
(Personally, since moving my account to 100% cash on Oct. 2, two days before the averages began to break down, I have entered two longs. One was Tilray (TLRY) and the other was STAA.)
When sellers emerge to short breakouts, causing them to fail, it is the best sign there is that the market does not possess the speculative sentiment necessary for successful long-side speculation. This happens from time to time in the growth sector or any other sector.
In this case, the pattern setups mentioned in the last two reports were sound – Crox (CROX) successfully followed through after its breakout – and the averages appeared to confirm the Oct. 29 low as tradable.
On the short side, there have been two attractive entry points since the October correction began: Oct. 18 and Nov. 9. Just like I would be looking for pullback entries in growth leaders to go long, I am looking for rallies in FAANG stocks to short. Unfortunately, the Nov. 9 short setups came as we were in long mode. Now that we are in short mode, the averages and growth sector have become extended to the down side.
Rather than force the issue from the short side, I prefer to wait until the setups come to us. It is important to realize that just because the averages decline doesn’t mean short setups are abundant and everywhere.
Just like on the long side, timing is everything, and even more so on the short side. I am focused on the FAANG stocks, or the liquid glamours, generally, because there is a fundamental driver at work pressuring them lower. And that is the rising interest rate environment we are in. This makes premium-priced growth stocks much more vulnerable than value/cyclical or defensive segments. Large institutions can take weeks or months to liquidate a position. Their preference is to sell into strength, causing rallies to stall, reverse, and open up short-sale opportunities.
For the long-only player, a full cash position is called for. Short opportunities will mainly be discussed in the private, members-only blog. Premium members will receive an email notification of blog posts.
All subscribers will note a link at the bottom of any page on the site that says “Blog.” This is apparent only when one is logged in, and refers to the “public blog,” different from the private, members-only blog. The private blog is for actionable setups: pullbacks and an occasional reversal. Since most all of the short setups will be pullbacks, very few of these will appear in the Marder Report.
In sum, the market’s message, particularly beginning Monday, is that the speculative sentiment is too weak to support successful long-side speculation. Subscribers should be in a full cash position. The watch list has been trimmed, and will be updated as necessary. At this moment, there is nothing of interest on the short side as the averages and most stocks are extended to the downside.
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Unless otherwise noted, charts created using TradeStation. ©TradeStation Technologies, 2001-2018. 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 Thomson Reuters.