Housekeeping Note: As a reminder, this is one of our two scheduled off weeks for Top Ten, so there’s no issue today—but in its place, we’re sending a full Movers & Shakers update to keep you in the loop. Have a great holiday week; your next issue of Top Ten will come next Tuesday (January 3) when the market reopens after New Year’s.
Last week ended up being mixed for the major indexes—the Nasdaq, which remains the weakest of the bunch, fell about 2%, but the S&P 500 was flat and the broader indexes ended up a smidge.
Still, overall, we continue to lean more cautious for a couple of reasons. First and foremost, the intermediate-term trend remains “not up”—you can say it’s sideways, and actually a few good days could re-ignite a green light. But the damage since the Fed last spoke saw nearly all the indexes crack their 50-day lines after stalling out the prior few weeks, which tells us the buyers certainly aren’t in control.
Second, as has been the case for a while, few stocks and sectors are heading higher, with defensive stocks still in the lead and with sellers of potential leaders showing up near resistance; last week saw a few more test key resistance, too.
As we wrote last week, we do think a small potential positive is that, thus far, not a ton of names have been blasted to smithereens—the post-Fed decline in the indexes (especially the Nasdaq) seems worse than what we’re seeing under the surface, with a lot of names “only” near the lower end of their trading ranges. Even so, while holding support is a positive, that’s not what gets our brokerage account headed higher—we want stocks to head up, and right now, there’s not much of that going on.
Put it all together, and the onus is on the bulls, which is why we’re favoring a cautious stance. We think a Market Monitor near 4 makes sense right now; we’ll leave it there as we roll into 2023.
As for the near future, though, we’re keeping an open mind for a few reasons. Big picture, this bear market (at least on the Nasdaq) has been rolling for over a year at this point, with sentiment in the toilet and with everyone knowing all the bad news (inflation, Fed, etc.). While it’s been tedious and has paid to be defensive, the fact is the market at this point hasn’t gone down much (if at all) since the spring, despite the Fed’s rampage.
Moreover, while few stocks are in great shape, there’s little doubt more are holding up as time goes on. For instance, when the Nasdaq sank like a stone to its June low, just 9% of stocks on that exchange were above their 200-day lines; near the end of September, as it revisited those lows, that figure was 15%; and today, with the Nasdaq again takes aim at its lows, the number is 28%. Again, having just 28% of names above 200-day lines is still sour, but it certainly looks like more areas are resisting the downward pull of the bear and looking ahead six months to potentially brighter times.
Obviously, we offer no predictions—we just go with the evidence, which has served us well. Today, we think holding a lot of cash makes sense, but if the buyers can step up for more than just a day or two (early January is often super volatile, FYI), we could have something. As always, though, we’ll wait to see it before changing our stance in a major way.
BUY IDEAS
BioMarin (BMRN) continues to act just fine in the wake of its breakout in late November, with the latest dip looking very controlled thus far. If you didn’t buy it a couple of weeks ago, we’re OK taking a stab at it in this range, with a stop in the low/mid-90s.
Celsius (CELH) was rejected near resistance in the 120 area earlier this month and has faded with the market—but it’s not broken (50-day line is near 99; price support in the mid-90s), and if you don’t own any, picking up a few shares around here seems like a good risk/reward situation. A stop in the mid-90s makes sense.
Shift4 (FOUR) has been holding up stunningly well during the past couple of weeks, despite the market and the action of other payment peers. Maybe it’ll get slapped around given that it’s near resistance, but we’re OK with a nibble around here or on dips and a stop in the 47 area.
United Rentals (URI) has pulled back a bit since the Fed, but not much; it’s effectively gone straight sideways since mid-November following a huge rally. With the 50-day line catching up quick (near 335), you could consider buying some on a push above 360 with a stop just under 330.
SUGGESTED SELLS
Partial sell:
Catalyst Pharma (CPRX) looks great, and just spiked off its 50-day line on solid (not amazing) volume on good news. We like it, but given the environment, taking a couple chips off the table and holding the rest with a trailing stop seems prudent.
Outright sells:
Biogen (BIIB) – tripped stop
Gap Inc. (GPS) – meltdown since the Fed
Vulcan Materials (VMC) – tripped stop
SUGGESTED STOPS
We’re adding a number of stops to the list today, though many of these names still act reasonably well—we’re just throwing up some safety nets in case the downtrend accelerates.
Academy Sports (ASO) near 47
Apollo Global Mgt (APO) near 61
ASML Inc. (ASML) near 530
Atkore (ATKR) near 106
Axon Enterprises (AXON) near 157
Catalyst Pharmaceuticals (CPRX) near 16
Celsius (CELH) near 94
Emcor (EME) near 140
Five Below (FIVE) near 160
Fluor (FLR) near 32
Insulet (PODD) near 280
Lattice Semi (LSCC) near 62
Neurocrine Bio (NBIX) near 114
TechnipFMC (FTI) near 11.0
United Rentals (URI) near 328
WillScot (WSC) near 44
