Top 10 Report – March 9, 2020

Market Insight

The major indexes finished last week in less than stellar shape to say the least. On a bright note, the NASDAQ and S&P 500 held above their 2/28 lows, so the current rally attempt remains intact, although the NASDAQ was the only major index that ended last week above its key 200-DMA.

Remember, for a follow-through day to occur, either the NASDAQ or S&P 500 must rise at least 1.7% on more volume than the previous session. However, it’s important to keep in mind that we must also see fundamentally sound, leading growth stocks begin to form constructive bases and break out on heavy volume. Otherwise, it is likely to fail. Also, if distribution appears within the first few days after a follow-through day occurs, its chances of failure rises greatly.

While there has never been a new bull market or major uptrend in history that wasn’t preceded by a follow-through day, not every follow-through day leads to a new bull market, and it will always be the action of the market’s leadership that ultimately determines its success.

Over the last couple weeks, many of the leaders that were trading in a tight and organized manner just a week and a half prior, have become whippy, wide and loose much like the major indexes. This is not constructive behavior and some time will be needed from here for things to shape back up and look healthy and constructive again.

On the other hand, it’s amazing to see how many high growth leaders have continued to hold up constructively, despite major weakness in the general market. It remains to be seen whether these stocks can stay strong, or if they are simply the last batch of leaders standing before the market rolls over to new lows and ultimately breaks these stocks as well.

Corrections in the general market are the breeding ground for the next round of opportunities. So, continue to pay close attention to how rotation takes shape and focus on the strongest names in the strongest groups, with the best fundamentals. The first of these stocks to break out as the market follows through are often the best performers and hence, the stocks want to be concentrated in.

Until the general market signals that a new uptrend has begun, cash is king. Avoid the temptation to trade out of FOMO or boredom. Put on a couple very small “feeler positions” if you must. Otherwise, sit on your hands until the probabilities are heavily back on your side.

The Indicies

The NASDAQ erased most of last weeks gains on Friday, although it found support at the confluence of the top of its prior base and its 200-DMA, bounced and closed well off its lows as volume expanded, which is a positive.

The small-cap Russell 2000 was the only major index to undercut its most recent low as it continued to clearly lag the other three indexes.

The S&P 500 erased most of last weeks gains on Friday, although it held well above its low from 2/28 and closed well off its low for the day as volume expanded, which is a positive.

The DOW wiped out most of last weeks gains on Friday and while it held its most recent low, rallied back toward the end of the session and closed near its high for the day it remains well below its long-term 200-DMA, which is not constructive.

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