Whereas last week was driven more by macro factors, the focus this week was on the earnings deluge, with tons of leaders and potential leaders reporting. As we roll into Super Bowl weekend, most indexes are up modestly (0.5% to 1.5%) on the week, led by the Nasdaq, with the broader indexes again lagging a bit.
Despite the change in focus, not much has changed with the market’s positioning. When looking at the primary evidence, it remains clearly positive, with the intermediate-term trend of the major indexes pointed up (even the weakest index, the S&P 600 SmallCap, is more neutral than negative) and the action of leading stocks very buoyant, with many extending higher and with more gapping up hugely on earnings. Thus, overall, we remain bullish—we’re leaving our Market Monitor at a level 7.
That said, the same things to watch we wrote about last week are hanging around, the first being that most of the market continues to meander sideways. To be fair, this divergence is more about concentrated buying (in the leaders) rather than broadening selling pressures (new lows are still under control), but it does raise risk of some character change in the days/weeks ahead.
Plus, there’s little doubt things are becoming near-term frothy, with many exaggerated moves higher, including some after earnings. And finally, the trend of interest rates is looking iffy here, with the five- and 10-year Treasury yields cracking intermediate-term support (50-day lines and recent highs).
To be clear, up is good—big upmoves on earnings and things remaining “overbought” are hallmarks of bull markets. And after the last couple of years where trends would last a few weeks at best before rolling over, we’re enjoying the run.
But it’s best to pay attention to all of the evidence out there, which today means (a) riding most of your winners higher as long as they act well, but also (b) taking some partial profits on the way up and (c) looking to buy fresher names at high-odds entry points.
POTENTIAL BUYS
Intra-Cellular (ITCI) had a very nice November/December run, but like many biotechs (and non-tech names), it’s spent the past few weeks building a launching pad—and after testing its 50-day line, it’s begun to bounce. We’re OK starting a position here with a stop just under 65. Earnings are due out February 22 and there is event risk (clinical trial results) as well, just FYI.
SUGGESTED SELLS
Partial Sells
We’re not huge fans of repeatedly taking partial profits in the same name—but in this case, we’re OK shaving off a few more shares of Spotify (SPOT), which acts great and gapped up on earnings but is extended in both time and price.
KKR Inc. (KKR) had a solid reaction to earnings this week, with three straight good-volume up days. Big picture, we like it (bull market stocks should do well in a bull market, of course), but if you bought with us in January, we think you can sell a portion of your position up here.
Taiwan Semi (TSM) looks great with an accelerated move higher after a post-earnings-gap dip, but it’s the same story as many names—big picture, we like it, but ringing the register a bit up here makes sense to us, while holding most of the position with a stop near your cost.
Full Sells
Cameco (CCJ) – couldn’t get through round number resistance at 50 and cracked support this week.
Pinterest (PINS) – bad earnings reaction today, tripped stop.
Snap (SNAP) – another bad earnings reaction – if you want to sell some and hold some for a bounce, that’s fine, just be sure a bad situation doesn’t get much worse.
TripAdvisor (TRIP) – TRIP has earnings next week, so maybe it reacts well, but it’s had trouble getting through 22 and Expedia’s (EXPE) poor reaction today is hurting the stock.
SUGGESTED STOPS
Advanced Micro (AMD) near 157
Ascendis Pharmaceuticals (ASND) near 130
CymaBay Therapeutics (CBAY) near 23.5
Datadog (DDOG) near 123
Dave & Buster’s (PLAY) near 50.5
Gitlab (GTLB) near 63
GoDaddy (GDDY) near 104
Intra-Cellular Therapies (ITCI) near 64.5
KKR Inc. (KKR) near 83
Lennar (LEN) near 143
Martin Marietta (MLM) near 490
Nutanix (NTNX) near 46
Nvidia (NVDA) near 545
Shopify (SHOP) near 78
Spotify (SPOT) near 205
Taiwan Semi (TSM) near 115
Toll Brothers (TOL) near 95
United Rentals (URI) near 565
Vertiv Holdings (VRT) near 53.5
