For the first time in about three months, this week saw the sellers really demonstrate some power—yes, the major indexes took some lumps (down 1% to 2.5% coming into today), but more important, we saw many stocks crack near- to intermediate-term support, especially on the growth side of things.
If you’re looking for a reason for the selling, it would probably be interest rates—we’ve seen long-term Treasury rates rally 20 to 25 basis points from Monday through Thursday, with the 10-year note up as many as 45 basis points in just over two weeks. This has also been one of the worst earnings seasons we can remember in growth stocks, with tons of implosions even on “good” numbers.
That said, we’re less interested in the why and more the what. And here’s what we’re seeing: For growth stocks, it’s looking like many names have hit near- to intermediate-term peaks; for the market, more near-term wobbles are possible given that there’s been no real selling for a couple of months; but big picture, there’s been very little in the way of red flags, so the odds are still fairly strong that there will be higher highs ahead once this selling finishes up.
In terms of our stance, it’s basically what we’ve been doing of late, but more so—if something keels over, we’re either selling some or all of it, while on the buy side, you should be more discerning, looking for solid risk/reward entry points and also some signs of support in recent days. In terms of where to look, there’s no question that growth (in general) is weaker while cyclical (oil, some metals, transports, etc.) stuff is holding up better, but just about everything came under the gun.
We’ll likely pull our Market Monitor down to a level 6 given what’s out there, and given the fact that there will likely be some further selling. That said, we’re also not selling wholesale and think the stocks and sectors that consolidate normally should see higher prices ahead.
Long story short: Near-term, we’re playing things cautiously, though longer-term, the vast majority of the evidence is still positive, so it’s a matter of getting rid of poor performers, holding a bit more cash, but also keeping your eyes open for when the sellers run out of ammo.
POTENTIAL BUYS
Ollie’s (OLLI) continues to act well, and we’ve actually seen some retailers react well to earnings (others not so much). Shares have actually traded tightly during the past couple of weeks despite all the market’s gyrations—we’re OK nibbling here or on dips to 70 with a stop near 64.
SUGGESTED SELLS
Partial Sells
We like the action of Apollo Group (APO), which has traded calmly and gapped up after earnings this week. That said, we think booking some partial profits up here makes sense, trailing a stop for the rest.
Same goes for Modine Manufacturing (MOD), which gapped up yesterday; we think taking some of the 20%-ish profit off the table is prudent
Full Sells
Allegro Microsystems (ALGM) – tripped stop
Arrow Electronics (ARW) – broke on earnings
Axcelis Technologies (ACLS) – starting to crack, before and after earnings
Confluent (CFLT) – tripped stop … but has snapped back very nicely after earnings. If you still own it, give it a chance. We may look for a re-entry point if things settle down.
DoubleVerify (DV) – earnings meltdown. Could sell some/hold the rest if you choose.
Digital Ocean (DOCN) – earnings collapse
HubSpot (HUBS) – tripped stop. Another earnings loser.
Martin Marietta (MLM) – tripped stop on a post-earnings shakeout from VMC
MasTec (MTZ) – imploded on earnings; could sell some and hold the rest if you choose
Palo Alto Networks (PANW) – gapping down today in concert with FTNT which is blowing up after earnings
Shopify (SHOP) – earnings loser
SUGGESTED STOPS
Acadia Pharmaceuticals (ACAD) near 26
Airbnb (ABNB) near 131
Apollo Global (APO) near 76
ATI Inc. (ATI) near 42
Argenx (ARGX) near 470
Chart Industries (GTLS) near 155
Datadog (DDOG) near 102
Dave & Buster’s (PLAY) near 41.5
DraftKings (DKNG) near 26.5
Howmet Aerospace (HWM) near 46.5
Krystal Biotech (KRYS) near 118
Procore Technologies (PCOR) near 66
RxSight (RXST) near 28
Shake Shack (SHAK) near 72.5
United Airlines (UAL) near 50
Vulcan Materials (VMC) near 213
