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May 5, 2015, 3:13 p.m. EDT

Cash ain't trash as the stock market behaves bearishly

The price action has been ominous in the Nasdaq

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About Kevin Marder

Kevin Marder is a guest columnist and a co-founder of MarketWatch. He is principal of Marder Investment Advisors Corp. and a contributor to The Gilmo Report. Previously, he served as chief market strategist for Ladenburg Thalmann Co. and developed institutional fixed-income risk management software for Capital Management Sciences.

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By Kevin Marder

Monday's stock market action, in the wake of two recent heavy-volume down days, was ominous, as the Nasdaq retraced the entire day's gains to close near the session low.


Chart created using TradeStation. ©TradeStation Technologies, 2001-2015. All rights reserved.

Monday qualified as a quasi-doji candlestick pattern, which equates to a day of indecision. As the below chart shows, the past two weeks of action show substantially stronger red bars (down days) than blue bars (up days).

This bearish bias in the Nasdaq corroborates the comment made in last Thursday's column: " The tone to the leadership has changed this week. It is nothing dramatic, but the deterioration in dozens of glamour growth issues has reached a point where the market glass becomes half empty instead of half full ."

Since then, more selling has transpired in the speculative growth glamours, i.e. the current cycle's leadership. This is the rubber-meets-the-road indicator of a market's health. Moreover, it is the best litmus test of the speculative sentiment of market participants, or the degree of risk-taking.

To wit, Tractor Supply /zigman2/quotes/202009274/composite TSCO -5.53% , Zebra Tech /zigman2/quotes/201850708/composite ZBRA +2.20% , Acadia Healthcare /zigman2/quotes/208646495/composite ACHC -12.16% , JD.com /zigman2/quotes/205122565/composite JD -0.47% , Repligen /zigman2/quotes/210324360/composite RGEN +1.30% , Clovis Oncology /zigman2/quotes/201295534/composite CLVS +0.49% , Depomed , ANI Pharmaceuticals /zigman2/quotes/208876066/composite ANIP -1.34% , Wayfair /zigman2/quotes/201071690/composite W +7.18% , Qorvo /zigman2/quotes/209919828/composite QRVO -4.20% and Qualys /zigman2/quotes/201504669/composite QLYS +2.75% (price plummeted after Monday's close on a disappointing outlook), have all seen recent breakouts of four- to five-week consolidation patterns fail.

Beyond this, the liquid glamours, which offer a superb view into the mindset of institutional players, are mostly being distributed. A liquid glamour is a stock expected to post 20%-plus earnings growth in the current and next fiscal years, and which also offers deep liquidity. This combination of expected growth and liquidity makes these shares especially attractive to institutions pursuing a growth (as opposed to value) mandate.

Among these, Facebook /zigman2/quotes/205064656/composite FB -2.53% , LinkedIn , Celgene and Baidu /zigman2/quotes/209050136/composite BIDU -2.40% are all being sold off.

Four liquid glamours that are bucking the selling are Netflix /zigman2/quotes/202353025/composite NFLX -2.25% , Salesforce.com /zigman2/quotes/200515854/composite CRM -0.0074% , Valeant Pharmaceuticals and Tesla Motors /zigman2/quotes/203558040/composite TSLA +5.62% . All four went through their own extended basing period, and are worth keeping an eye on for possible future leadership. The stocks that hold up the best during a general market decline are often the leaders on the next leg up.

Speculators following this strategy should always maintain a watch list of issues building bases and otherwise holding up amid a general market pullback. Accordingly, due to the market's potential to turn around on a dime, a few long ideas are noted below.

Among the names, Vivint Solar /zigman2/quotes/202100570/composite VSLR -4.52% is a retailer of solar energy systems to homeowners. The company lost money in 2012, was profitable in 2013, and then posted another deficit in 2014. Most analysts who follow the company on Wall Street see more red ink this year and next.

Revenue growth has been triple-digit in terms of percent over the past eight quarters. Vivint has notched top-line growth of 267% and 248% in the two most recent periods, respectively.

Vivint is a recent new issue, having going public Oct. 1 at $16. Since then, it has formed a large cup pattern with a one-week handle. For very aggressive speculators, the handle high of $14.89 posted April 24 might be considered for an entrance pivot.

However, it is important to note that this promises to be a volatile issue, what with its teen-aged price and lack of earnings forecasted for the foreseeable future. Earnings are expected after the markets close on May 12, according to the company Web site.

With earnings just a week away, all but the most aggressive of speculators might wish to monitor the stock for its post-earnings reaction.


Chart created using MarketSmith. ©2015 MarketSmith Incorporated. All rights reserved.

Mobileye develops collision-avoidance technologies used by automobile drivers. The Israeli-headquartered outfit is expected to log 77% earnings growth this year, followed by 79% next year, according to most analysts.

The stock went public Aug. 1 at $25, jumping 134% in its first five weeks. Since then, price has largely been basing in order to rid itself of the intense speculation and attention of those first several weeks. While attractive entrance does not present itself currently, this is one to watch given its beefy earnings growth estimates and constructive chart pattern.


Chart created using MarketSmith. ©2015 MarketSmith Incorporated. All rights reserved.

In summation, last week's distribution of the growth-stock leadership continues. This bearish behavior is corroborated by two gaping distribution days in the Nasdaq Composite. As a result, long-only speculators should be in a high cash position.

It is to be remembered that the market is usually right, while opinions are often wrong.

Kevin Marder

For intraday market comments and stock ideas: https://twitter.com/mardermarket

Earnings estimate data provided by Thomson Reuters.

The views contained herein represent those of Marder Investment Advisors Corp. ("MIAC"). At the time of this writing, of the stocks mentioned in this report, Kevin Marder and/or MIAC held no positions, though positions are subject to change at any time and without notice. This information, which may have been previously disseminated, is issued solely for informational and educational purposes and does not constitute an offer to sell or a solicitation of an offer to buy securities. The information contained herein is based on sources which we believe to be reliable but is not guaranteed by us as being accurate and does not purport to be a complete statement or summary of available data. Past performance of any security or strategy is not a guarantee, nor is it necessarily indicative, of future results. Opinions expressed herein are statements of our judgment as of the publication date and are subject to change without notice. Entities including but not limited to MIAC, its members, officers, directors, employees, customers, agents, and affiliates may have a position, long or short, in the securities referred to herein, and/or other related securities, and may increase or decrease such position or take a contra position. Neither MIAC nor any of its affiliates will be liable, and we accept no liability whatsoever, for any losses any recipient of this report may suffer as a result of his or her or its use of this report or any of its contents.

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