After a great first few weeks of the year, the sellers finally stepped up this week, creating some sloppy action as investors took some profits, discounted more Fed rate hikes and positioned ahead of next week’s inflation report. After this morning’s gap lower, the big-cap indexes are down in the 2% range, though broader indexes are off more, including 4% for small caps.
Seeing as this is the market’s first pothole since trying to get going, we’re watching everything carefully—how the market and high relative strength stocks retreat will probably tell us a lot about the strength of the current move. Holding key moving averages and/or resisting the decline will be positive, while things like failed breakouts and implosions among potential leaders would clearly not be.
To this point, it’s not fun, but everything looks in order, especially when it comes to the top-down evidence: The intermediate-term trend is up for the major indexes (though we would say the “breakouts” above December resistance are looking iffy), the longer-term trend turned up by our measures last week (all indexes still north of their long-term moving averages) and the broad market is healthy (tame new lows, etc.). We’re also not seeing any rush into defensive names (XLP came into today down 1.5% on the week, actually worse than the S&P 500) and let’s not forget the 2-to-1 Blastoff Indicator flashed about a month ago.
On the more critical side of things, we would say that leadership has been spotty so far. What leadership there is has been mostly concentrated among cyclical areas, which are naturally far more choppy (and can get tossed around by an economic report or a Fedhead speech, etc.). However, at this point we really haven’t seen any abnormal action among cyclical or other names.
All in all, then, it’s so far, so good—but it’s important to remain flexible should the sellers strengthen their hand. If you’re huge in cash, we’re not opposed to doing a little nibbling right now, and on the other end of the spectrum, if you cannonballed into the pool lately, you may want to pare back.
But if you’ve taken a few steps into the market during the past month, we’d mostly stand pat and see how things play out. As of now, we’re inclined to leave our Market Monitor at a level 7, though if today/Monday are ugly we could knock it down a notch.
BUY IDEAS
If you want to nibble on names, we’d be looking for pullback buys in stocks that showed clear, strong accumulation in January and are now easing into some moving averages.
American Airlines (AAL) is lower priced and choppy, but it’s given up zero of its massive run to start the year. Dips into the 25-day line (near 16.3) or a bit below would be tempting if you’re not yet in.
Jabil (JBL) hasn’t pulled back at all (yet), but we’re writing up here as an idea—shares “just” broke out of a year-long base in early January, so odds favor dips being buyable. Any retreat into the 78 to 80 range would be tempting, with a loss limit of 10% or so.
SUGGESTED SELLS
Partial Sells
If you haven’t yet, we’d take a few chips off the table with Weatherford (WFRD)—in fact, we might ring the register a second time even if you have shaved off some shares. The stock looks great, but is out of trend on the upside after Q4 results.
Full Sells
Agnico Eagle (AEM) – gold stocks have gone from solid to cracking in just a couple of weeks
Akero Therapeutics (AKRO)
Alpha Metallurgical (AMR)
Axon Enterprises (AXON) – tripped stop, though it bounced back that day on wild action. If you still own it, a stop near 179 makes sense if you want to give it a little rope
Commercial Metals (CMC) – not awful here, but there are stronger names in its group as shares haven’t made any progress for a bit
Planet Fitness (PLNT) – stalled out some a month ago and is now coming off with the market
MasTec (MTZ) – another name that looks “OK” but not powerful and hasn’t really been able to eclipse its prior (November) high
SUGGESTED STOPS
Academy Sports (ASO) near 50
BioMarin Pharmaceuticals (BMRN) near 107
Boeing (BA) near 192
First Solar (FSLR) near 159
Five Below (FIVE) near 176
Freeport-McMoRan (FCX) near 40
Impinj (PI) near 119
Noble Corp. (NE) near 38
Reliance Steel (RS) near 214
Yum China (YUMC) near 57
