October 23, 2019

The major averages are held captive within a brief trading range. This occurs as the deterioration in the growth sector continues.

The following chart shows a Nasdaq with alternating colored bars over the last nine sessions. A student of short-term price behavior will recognize this as the sign of a market in congestion, i.e. a range, and uncertain about its next move.

Despite the ongoing travails of the growth sector, market internals – the performance of the average stock – remain stout. What normally occurs in a mature bull market is a rotation into larger, less-risky issues at the expense of small- and medium-cap stocks.

This causes a breadth divergence, whereby the NYSE advance-decline line does not confirm new highs in the S&P with new highs of its own. As the following chart shows, the opposite is occurring, perhaps due to the large population of interest-sensitive stocks in the NYSE.

While nothing is infallible, the subject of breadth as a leading indicator is covered in detail in this public blog post from a year ago.

The following nine charts are from our 25-issue Watch List. They are shown here for the benefit of basic plan subscribers who do not view the videos in which the health of these important issues is regularly discussed. These titles are important because they are among those growth shares that had held up the best in this market. They are the last of the Mohicans.

The lesson here is that a powerful breakout can only rise so far amid a market that has repeatedly shown its distaste for growth stocks. Those who do not understand this will keep on buying breakouts until there are none left standing. These players are afflicted with FOMO, or fear of missing out.

The following names are not to be bought. They are listed here in the event the market firms up in a significant manner when it comes to growth stocks.

Cardlytics (CDLX) is a leading computer software – enterprise name that did not break down during the late-summer correction in growth glamours. Losses are expected this year and next, while revenue increased 10% and 37% in the two recent quarters. The stock holds a B- acc/dis rating.

Price forms a six-week base with a 20% depth. It is buyable above the pattern high of 39.62. Earnings expected Nov. 12 (unconfirmed).

Liveperson (LPSN) has had a checkered past in terms of earnings growth, with losses expected this year and next. Sales growth has been 14% and 15% in the two recent quarters. A 97 RS stock in a 67 RS group with a C+ acc/dis rating.

The stock forms an eight-week double-bottom base. It can be taken above the 41.00 pattern high. Earnings expected Nov. 7 (confirmed).

Model N (MODN) is a computer software – enterprise issue with an expected earnings growth rate of 56% in the September ’20 fiscal year. Sales growth has declined in the last three quarters. The stock holds an A- acc/dis rating.

Price forms an eight-week flat base with an 8% depth. This is considered tight, and attractive. The stock can be taken above the 29.26 pattern high. Earnings expected Nov. 5 (confirmed).

Otherwise, I have begun adding S&P 500 stock setups to the Focus List from a swing-trading model which I tested some years ago. Those test results were covered in a public blog post quite a while ago here. Within the post, look for the chart of an equity curve and related statistics. These setups will be included in the reports to the extent they are actionable for a Monday or Thursday session, which would apply to subscribers on the basic plan.

In sum, when they clean out a sector, they normally get to everything. This is what occurred in the growth sector during the October-December 2018 bear market, and this is what is still occurring now. In sum, cash is king for even the most aggressive players.

Kevin Marder

For intraday ideas and analysis: https://twitter.com/mardermarket

Unless otherwise noted, charts created using TradeStation. ©TradeStation Technologies, 2001-2019. 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. Expected earnings release dates provided by EarningsWhispers.