November 2, 2022

The Fed stayed vigilant today in its messaging about the need to corral inflation, deflating the market's hopes for a pivot, pause, or other ray of daylight.

As a result, the market saw serious selling, defined here as an S&P off at least 2.50%.

Our TQQQ position was exited, while others fared relatively better.

Given the extent and breadth of the damage today, there is nothing on the Focus List for Thursday. Friday is the release of the monthly NFP (nonfarm payrolls) report.

Cheniere Energy (LNG) is a stock I mentioned in yesterday's video. It was on the Focus List for today. It is rare that I allow the fundamental story of a stock to seep into my analysis of the issue. Maybe once a year. In this case, LNG has an established position as the largest U.S. exporter of liquified natural gas (LNG). The company throws off lots of free cash flow which allows it to self-fund expansion projects.

The fundamental metrics that we always highlight are superb: 93% earnings growth estimate for '23, and triple-digit sales growth for the last two quarters.

Technically, it sits right at the top of its recent consolidation area. Earnings are expected at 7:30 a.m. ET tomorrow.

The future: Value stock leadership?

Subscribers should recognize that growth does not necessarily lead every bull market. While not a prediction, it is possible the popularity of value stocks over growth stocks stays with us longer than just through this bear market.

Growth outperformed value since '11 because the backdrop was so optimal for growth, what with low inflation, low bond yields, and an accomodative Fed.

Should value lead the next bull market, it is important to understand that the stock patterns will look similar to what we are used to when growth leads. Base, breakout, follow-through. The main difference is that since price-earnings multiples are compressed compared to growth, the post-breakout follow-through in percentage terms is likely to be less than what we are accustomed to.

There should also be some growth stocks bucking the trend. These would be names that are so compelling that institutions cannot resist owning them. But these might number only a few.

System P

Testing of this system is starting off on the right foot. Six entries, with five wins and one loss. The loss was a B+ grade setup. All the others were A's. A win is defined as whether the underlying stock gains at least 1%, which would translate to a rough 10% on the options.

When looking at any test, whether back test or forward test, a grain of salt must be used in interpreting the results. Mainly, you react differently when your money is on the line than otherwise. The proof is always in the puddin'.

ACLS Win
PLCE Loss
ASND Win
ILMN Win
NFLX Win
RBLX Win

SCHW is shown here to provide another example of what a winning trade looks like. I did not get a chance to add SCHW to the list in time for that day's cutoff, and will not be used as part of the test results.

Some of these stocks rose 10% or more, or 100% roughly for the options, if traded. Should System P become a reality, each player will be responsible for his own exit.

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)
Bread and butter pullback: Pt V (1:41)
System R
Short-selling (25:53)
Wyckoff spring reversal (2:30) 
5-minute breakup test (8:01)
Screens (21:03)