WHAT TO DO NOW: The overall market remains in good shape, as our trend-following market timing indicators remain clearly bullish, and the Two-Second Indicator, while not positive, continues to show some improvement.
Tonight, we’re going to buy one new stock—it’s Diamondback Energy (FANG), a pure-play on the energy sector, which has turned very strong. Details below.
Model Portfolio
Alibaba (BABA 173) gapped up and away from the 160 level way back in the middle of August, and in the more than four months since then, the stock has been working to build a base above that level, with the strongest support level at 170. If this level holds (the company’s great fundamentals say it should), the stock would be a great buy here. But as it stands, the stock is still at risk of falling through the 170-165 level and thus hold is the proper rating. HOLD.
Diamondback Energy (FANG 123), We’ve been very intrigued by the action of energy stocks for a few weeks, and recently, the group has lifted off as oil prices have firmed up. Our pick of the litter is Diamondback Energy, which thanks to top-notch fundamentals, growth outlook and chart action, looks like the liquid leader in the sector. The company is a pure-play Permian Basin explorer with about 191,000 net acres in the Delaware and Midland basins, and that lucrative acreage (along with its best-in-class cost structure) has led to terrific returns and margins. Even with oil in the $40 to $50 barrel range, the company has thousands of economical wells, leading to a huge production ramp (80%!) this year. And with oil prices perking up and the prospect of accelerating economic growth ahead, Diamondback should continue to grow rapidly. Chart-wise, the stock formed a good-looking launching pad for most of 2017, and after tightening up the past few weeks, has broken out on the upside on great volume. If this turns out to be a fakeout, we figure our risk is 10% to 12% on the downside, but after years in the wilderness, the odds are good that oil stocks are beginning a new uptrend, with FANG being the institutional favorite. BUY.
E*Trade (ETFC 49) is a classic bull-market stock, a beneficiary of both rising values and increased trading activity. The stock hit a high of 51 at the start of December, and has been digesting that gain since, tagging a low (to date) of 48. Volume patterns are very positive. We recommend trying to buy in the 48-49 range. BUY.
Exact Sciences (EXAS 53) (by coincidence) also has an important recent low at 48. But while ETFC is a low-volatility growth stock, EXAS is a fast-growing small company whose stock can really swing. We sold a third of our shares a few weeks ago as the stock’s correction was deepening, but the long-term fundamental picture remains intact, so we’re sitting tight with the rest—for now. HOLD.
Facebook (FB 178) is the big dog in the portfolio and the big dog moves slowly compared to many of the younger pups, but the stock’s main trend is up, and there’s no sign that it’s going to change in the near future. Fundamentally, we remain very bullish on Facebook’s business as it continues to dominate (and increasingly monetize) the social media world. Hold.
Five Below (FIVE 68) is a rare bright star in the mostly dim retail landscape, and thus a magnet for money that is leaving struggling retailers. Over the past week, the stock has been trading between 66 and 68, consolidating its previous gains and prepping for an eventual breakout to new highs. Try to buy on a normal pullback (the 25-day moving average is approaching 65). BUY.
Grubhub (GRUB 73) hit a record high last Wednesday and has pulled back normally since—but not much. Bottom line, the stock remains extended to the upside, and is ripe for corrections. Aggressive investors can buy here, but more patient investors will wait for a deeper pullback.b
PayPal (PYPL 75) sold off sharply back at the end of August (on big volume) and since then the stock just hasn’t been the same. Yes, it’s still above its 50-day moving average, and yes, that moving average is still advancing, but volume is light and the stock looks tired. Patient investors can hold. HOLD.
ProShares Ultra S&P 500 Fund (SSO 110) is a great way to leverage the strength of the bull market. Since hitting a record high of 110.84 on December 18, the stock has been trading tightly around 110. BUY.
Shopify (SHOP 105) is a swinger; the stock has had corrections of 27% and 21% in the past few months as it consolidates its huge advance of 2016-2017. But the main trend remains up, and the firm’s growth story remains outstanding. If you’ve got it—and especially if you bought when we bought—continue to hold tight. If you don’t own it, you could nibble here, as the stock’s gyrations have diminished and the most logical next big move is up. HOLD.
Universal Display (OLED 176) was red-hot when it peaked at 192.72 in late November, and since then the stock has been cooling off, aided by a couple of waves of selling. The first wave took the stock down to 158, while the latest, which ended Monday, took the stock down to 165, where it met its uptrending 50-day moving average for the first time since August. While there’s no urgency about buying here, in general, this is likely to mark a low-risk entry point. BUY.
Watch List
Energy stocks look great: In addition to new addition Diamondback (FANG 123), we like Continental Resources (CLR 53) and ProPetro (PUMP 20).
Nutanix (NTNX 36) has a big (though hard-to-understand) technology story and a beautiful chart with a tight base right here.
Planet Fitness (PLNT 35) has a classic cookie-cutter story and an unstoppable uptrending chart.
ROKU (ROKU 55) also has a great growth story, though its chart is wilder than PLNT’s.
Splunk (SPLK 83) has another great growth story. Since blasting higher in mid-November, it’s been building a tightening base between 80 and 84.
