Last week we wrote about a couple of secondary signs that looked encouraging—including the action of the broad market, with the number of stocks hitting new lows drying up in a meaningful way. Happily, we’ve seen that continue this week, all while the major indexes have perked up nicely (up 1.5% to 3%-ish), even after this morning’s hiccup.
In fact, the broad market’s strength was so eye-opening that one of two “granddaddy” blastoff indicators flashed: The NYSE Advance-Decline line averaged a 2-to-1 positive reading over 10 trading days. Depending how you measure it (we tend to take out “repeat” signals), it’s only happened a dozen or so times since 1960, with very bullish results going forward (average max gain in the S&P 500 around 25% during the following year, often with little drawdown from the signal). More important to us is that when these signals came after bear phases they almost always led to a new bull move.
It is worth noting that a couple of “mini” blastoff measures did flash last year only to fail, so there are no sure things, but there’s no doubt the 2-to-1 signal is a feather in the bulls’ cap, as are some of the other positives (such as horrid investor sentiment) that are out there.
That said, we still need to see other primary indicators confirm the positives above, and right now that’s still a work in progress. The intermediate-term trend of the indexes is effectively still neutral, the longer-term trend remains down and individual stocks remain hit or miss, with a lot of selling on strength.
We think this is descriptive and not necessarily predictive—even if the market does kick into gear, it can take time for individual names to lift off—but we’re just going to take things as they come.
Long story short, we’re optimistic and encouraged; we’ll likely bump up our Market Monitor a notch or two (5 or 6) come Monday. But it’s really about seeing further follow-through in the days/weeks ahead—if we do, the bulls may finally be taking control, but as always, we have to see it happen first.
BUY IDEAS
Emcor (EME) had a very powerful and persistent (nine weeks up in a row) move in October to new highs and a very reasonable dip and shakeout for the past six weeks—and now it’s perking up again, setting up a nice risk-reward trade. We think you can enter here if you’re not yet in with a tight stop near 142.5.
Atkore (ATKR) is a similar situation, with a very nice ramp to (marginal) new highs in November, a reasonable correction into the 50-day line and now beginning to resume the move—you could nibble here if you’re not yet in with a stop near 111.
SUGGESTED SELLS
Partial sells:
Crocs (CROX) continues to act well and we have a very nice profit on our buy from just a month ago. We think selling one-third to one-half of your stake and trailing a stop for the rest makes sense.
Same goes for Wynn Resorts (WYNN) – we like the re-opening theme, but ringing the register if you haven’t yet on a few shares is prudent.
Outright sells:
Affiliated Managers (AMG) – looks fine, just taking a profit after the recent run.
Dexcom (DXCM) – not the worst but looks like the past two months will now be resistance
Halozyme (HALO) – Very disappointing 2023 guidance cracked the uptrend
Super Micro Computer (SMCI) – knocked out after a short-selling firm took a swing at it
SUGGESTED STOPS
Academy Sports (ASO) near 47.5
Atkore (ATKR) near 111
Axon Enterprises (AXON) near 158
Catalyst Pharmaceuticals (CPRX) near 17.5
Celsius (CELH) near 95
Crocs (CROX) near 100
Emcor (EME) near 142.5
Five Below (FIVE) near 165
Flex Ltd. (FLEX) near 21
Impinj (PI) near 104
KLA Corp. (KLAC) near 370
Planet Fitness (PLNT) near 74.5
TechnipFMC (FTI) near 11.3
United Rentals (URI) near 349
Univar (UNVR) near 30
