The sellers continued to do their work to the market this week, and instead of the selling being concentrated in “just” growth titles, the weakness is now spreading to most nooks and crannies of the market. Coming into today, all of the major indexes were lower by 2% to 4%, with the worst performers the broader (small- and mid-cap) indexes.
More important to us is that, while the downturn started with the Nasdaq being weak, now we see all of the major indexes below their 50-day lines. That turns the intermediate-term trend down, which, along with a few other measures (like the expanding number of new lows), confirms what we’ve been seeing the past couple of weeks.
We always focus our attention on the primary evidence—the indexes and action of individual stocks—but these days we’re also keeping an eye on interest rates, which are now threatening to break out on the upside. There are no guarantees but further rises in rates will very likely keep the pressure on stocks, especially growth stocks.
Now, there is some good news. First, when the market was kiting higher in July, most of the world’s problems were forgotten—now, though, after three weeks of pain, sentiment is turning pretty quickly by a few measures. Second, the longer-term trend is still up and, really, it would be unusual for the market to simply up and die given its action the past many months (big bear, bottoming action, decisive strength).
And third, we remain intrigued with the fact that defensive stocks are acting nearly as badly as everything else—so far this week, in fact, the Nasdaq (and the equal-weight Nasdaq 100) are off less than consumer staples (XLP), in fact. Throw in the fact that we’re seeing some legitimate oversold-type readings and we wouldn’t completely throw in the towel.
Even so, that’s no reason to ignore what’s going on—right now, damage is being done to a variety of names, with growth stocks continuing to pull up the rear. Given the intermediate-term break, we’re going to pull our Market Monitor down to a level 5. The odds favor the next major move being up, but with there still being plenty of air pockets out there, it’s best to remain cautious until the sellers run out of ammo.
POTENTIAL BUYS
Even oil stocks are taking on some water, but ChampionX (CHX) has been pretty calm so far, dipping on light volume as it pierces its 25-day line. A dip into the 34 to 34.5 area would be tempting, with a stop near 32 (a bit under the 50-day line).
SUGGESTED SELLS
Partial Sells
None this week
Full Sells
Aehr Test Systems (AEHR) – tripped stop
Autoliv (ALV) – tripped stop
DraftKings (DKNG) – tripped stop
TechnipFMC (FTI) – mini-double top and taking a modest profit
Microstrategy (MSTR) – tripped stop
Modine Manufacturing (MOD) – taking a profit
Ollie’s Bargain Outlet (OLLI) – short-term failed breakout
Royal Caribbean (RCL) – not an awful chart but don’t want to lose much on the trade
Shake Shack (SHAK) – tripped stop and imploded after positive earnings reaction
Shift4 (FOUR) -- breakdown
SUGGESTED STOPS
Acadia Pharmaceuticals (ACAD) near 27
Apollo Global (APO) near 77.5
ATI Inc. (ATI) near 42.5
Argenx (ARGX) near 480
Blackstone (BX) near 96
Boeing (BA) near 219
Chart Industries (GTLS) near 158
Fastly (FSLY) near 17.5
KLA Corp. (KLAC) near 470
RH Inc. (RH) near 340
Tidewater (TDW) near 55
United Rentals (URI) near 439
Vulcan Materials (VMC) near 214.5
