September 4, 2019

Things are becoming a bit more interesting.

While the Nasdaq is still in its four-week-plus range, it is closing in on the top of its triangle pattern while printing a series of higher lows. Specifically, we now have a series of four higher swing lows as seen in the chart (technically, three-and-a-half, but after Thursday it will likely be four).

The other item of note is a few interesting cases of positive divergence, one of them being in the ERX, which is the 3x long energy ETF. The ERX is not actionable at this point. The service hasn’t included any divergence setups to this point, but I began studying them in ’11 and I learned them in a way that I have never seen discussed anywhere.

They are usually a part of any reversal setups which hopefully will appear down the line. When these begin to become actionable, I will go over the basics of what I look for so you can understand the logic and thought process. Reversals are usually higher-risk endeavors and may not be suitable for less-aggressive players.

Otherwise, there is still a paucity of pattern setups for the breakout player. We continue to be patient and insist that the market comes to us, and not the other way around.

Among the names, Inmode (INMD) was not on the Focus List, but was a Watch List stock mentioned in Tuesday’s video as the most attractive recent IPO. It was noted that it could be taken above its recent eight-day shelf high. This was discussed for those very aggressive players who seek long exposure in this otherwise choppy, trendless market.

The stock Wednesday broke out of its shelf and was +12.9% on +145% volume. It is now extended beyond its pivot, but will be monitored for a pullback entry should it continue to act constructively.

Lam Research (LRCX) shows earnings estimates of -6%/27% for the June ‘20/’21 fiscal years. I like to see situations like this in which we have nearly 24 months of estimates laid out in front of us. This is possible with Lam due to its use of a June 30 fiscal year.

A 94 RS stock with its RS line in new-high ground ahead of price, a plus. The group RS is 85 and the acc/dist rating is B+.

Price broke out of a six-week, 13% deep flat base Wednesday, +4.1% on +35% volume. It can be taken above Wednesday’s high of 222.22, which would be 1.7% above the pivot, so well within the 5% maximum buying zone. One thing I like about LRCX is that the semiconductor area is starting to show relative strength again after its 12%-13% correction recently.

Please note that the group, a cyclical one, may not offer the return potential of an aggressive growth stock.

Lattice Semiconductor (LSCC) was discussed in Sunday’s report (“The stock can be taken above the Aug. 22 high of 20.48”). The comment stands.

Onespaworld Holdings (OSW) was another Watch List stock that Wednesday broke out of one of the few attractive basing patterns in the market. It may have been noted in a recent video, though it was not on the Focus List due to general market conditions.

Wednesday’s breakout took OSW +4.8% on +144% volume with 96 percentile close. It now sits 2% above its 16.21 pivot and is buyable above Wednesday’s high of 16.52.

In sum, the Nasdaq appears more likely to clear the top of its trading range than was the case in Sunday's report. As a consequence, a few names are back on the Focus List, namely the ones listed above. Long exposure, if any, should be light. There is no rush to become invested in this market, which remains news-driven with higher risk than usual.

From a subscriber

Thanks a lot [for the summary of the MarketSmith webinar on selling strategies]! GREAT video, well summarized to the point! Really enjoyed it. Especially the first part of the pivot day technique is super interesting. Fits perfectly to the analysis I am currently doing on how much room to give a stock if it comes back below the breakout level. Please continue to summarize these kind of webinars if you think they are beneficial for our group. Thanks again!

Kevin Marder

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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.