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Dec. 23, 2016, 1:32 p.m. EST

Growth-stock speculators need to tap the brakes here

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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


The past few sessions have done nothing to improve the fortunes of growth stocks. They remain under the gun, out of favor due to the prospect of higher interest rates and amid rotation into economically-sensitive, value/cyclical issues.

Growth-stock speculators would do well to exercise caution in entering this market from the long side. Very few pattern setups exist, with most falling under the value/cyclical banner. In the meantime, a couple of household name growth titles represent short-selling opportunities.

Among the names, Amazon.com /zigman2/quotes/210331248/composite AMZN -0.16% and Facebook , the two growth-stock glamours that best fit the mandates of large-stock growth managers due to their expected growth and deep liquidity, remain vulnerable. While they might tempt some speculators on the long side, each has had a big run from earlier in the bull market and should be avoided.

In fact, AMZN, which is experiencing extreme distribution, or focused selling, could possibly be shorted here, using the 792.40 high of Nov. 22 as a place for a protective stop of about 4%. If a half-sized starter position is used, this equates to 2% de facto risk.

As always, a protective stop should be used to mitigate risk, along with a starter position that is half normal size, or less. This initial position could be added to if the stock proves itself. In most cases, a position should not be entered when price is extended, i.e. more than 5% past the top of its base for buys.

In the chart below, 10 distribution days are highlighted in red. This clearly shows institutional liquidation.

Chart created using MarketSmith . ©2016 MarketSmith Incorporated. All rights reserved.

Facebook is much the same story. The social-media juggernaut shows clear selling by large investors as highlighted in the chart below. FB remains vulnerable and is considered potentially shortable at its current level of 116.61. A tight protective stop could be placed just above the Dec. 15 high of 122.50. This represents 5% risk, or 2.5% de facto risk if a half-sized starter position is used.

Chart created using MarketSmith . ©2016 MarketSmith Incorporated. All rights reserved.

Alibaba /zigman2/quotes/201948298/composite BABA +0.28% is another liquid glamour that is normally attractive to large growth-stock managers due to its expected earnings growth rate and its deep liquidity. However, in a market that is shunning large-capitalization growth stocks, it is being methodically liquidated.

BABA is currently extended to the downside, however, and does not represent an attractive entrance for a short-sale.

Chart created using MarketSmith . ©2016 MarketSmith Incorporated. All rights reserved.

Green Plains /zigman2/quotes/204775795/composite GPRE +2.85% was mentioned in the Dec. 21 report: " Aggressive speculators might consider monitoring price to see if it can pull back a bit closer to the 28.37 base top (see chart below) before considering entry ."

US : U.S.: Nasdaq
$ 146.09
-0.23 -0.16%
Volume: 65.81M
Nov. 30, 2023 4:15p
P/E Ratio
Dividend Yield
Market Cap
$1512.08 billion
Rev. per Employee
$ 74.88
+0.21 +0.28%
Volume: 17.88M
Nov. 30, 2023 4:02p
P/E Ratio
Dividend Yield
Market Cap
$189.53 billion
Rev. per Employee
US : U.S.: Nasdaq
$ 24.88
+0.69 +2.85%
Volume: 1.47M
Nov. 30, 2023 4:00p
P/E Ratio
Dividend Yield
Market Cap
$1.44 billion
Rev. per Employee
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