It’s been another up week for the market, though as of this morning, the gains have been relatively muted, generally up 1% or less.
Even so, that keeps all of the primary evidence intact: The intermediate-term (and longer-term) trends of the indexes, along with most stocks and sectors, are pointed up, and the action of most leading stocks (especially on the growth side of things) has been excellent, with many names kiting higher. Thus, we remain bullish and are holding most of our strong, profitable stocks.
As we wrote on Monday, though, it’s important to keep your feet on the ground, too, for a few reasons. First off, this rally is now three months old, and while there’s no set time limit (the market can go up or down as long as it pleases), history shows that even in very good environments, you’ll often get some choppy, tedious action, especially as many stocks are well extended above moving averages.
Second, there’s no question things are thinning out. if you look at small caps, mid-caps or even the equal-weight S&P 500 (symbol RSP), all are actually down a smidge this month and below their late-December highs, while the number of stocks hitting new highs on the latest push higher is far smaller than December.
And third (and possibly most important), interest rates are at key levels, with many testing key resistance (50-day lines, etc.) right now. The trend of rates is still down by our measures, but it’s something to keep an eye on, with another surge from here not likely to help the market.
Now, with all of those yellow flags spoken for, we also want to say: We follow trends, we don’t anticipate them, so we’re not making any major moves thinking the market and/or certain stocks are going to tumble. If anything, we continue to think that (while there are zero guarantees) the ducks are lining up for a good year, especially for many growth areas that were stuck in the mud for two-plus years.
Overall, then, we’re leaving our Market Monitor at a level 8—but we still think it pays to be more discerning on the buy side, looking for stocks that have cooled off a bit, while raising stops and booking some partial profits here and there in case the sellers make a stand.
POTENTIAL BUYS
If you don’t already own it—and if you don’t mind rolling the dice a bit—we like the setup of Novo Nordisk (NVO) into earnings (due January 31), with a nice pop to start the year and some tight trading since. Obviously, there’s risk if results aren’t up to snuff, but a small position here could work, with the idea of buying more should the stock get going on earnings next week.
SUGGESTED SELLS
Partial Sells
Advanced Micro Devices (AMD) – very, very strong, but we’ll take some chips off the table here, with shares up 25% or so in just a month.
ServiceNow (NOW) – not as strong as AMD, of course, but the rally off the 10-week line at the start of January has produced a solid run—booking a little profit and trailing a stop makes sense.
United Rentals (URI) – they don’t all work out like this, of course, but if you bought some URI earlier this week, we think it’s OK to book a little profit up here after the solid earnings reaction.
Full Sells
DoorDash (DASH) – it looks fine but isn’t exactly giving off major leadership vibes, so we’ll book our profit.
Gap Inc. (GPS) – tried to bounce after a mid-month slide but with no power.
Hilton (HLT) – it’s not a big profit but we’re going to take our quick gains on the way up.
SUGGESTED STOPS
Advanced Micro (AMD) near 150
Affirm Holdings (AFRM) near 38.5
Cameco (CCJ) near 44
Datadog (DDOG) near 113.5
Deckers Outdoor (DECK) near 695
Dave & Buster’s (PLAY) near 46
GitLab (GTLB) near 59
GoDaddy (GDDY) near 99
Intra-Cellular Therapies (ITCI) near 63
Lennar (LEN) near 138
Martin Marietta (MLM) near 482
Nutanix (NTNX) near 43
Nvidia (NVDA) near 525
Pinterest (PINS) near 34.5
Royal Caribbean (RCL) near 116
ServiceNow (NOW) near 705
Snap (SNAP) near 15.3
Spotify (SPOT) near 196
Toll Brothers (TOL) near 95
United Rentals (URI) near 550
Vertiv Holdings (VRT) near 47
