The New Year has gotten off to a poor start, with just about everything selling off and with growth-oriented names taking the worst of it. As of this morning, the S&P 500 is down about 1%, the Nasdaq is off nearly 3%, broader indexes are off 2%-plus and growth-y funds are off 4% to 7%! Even interest rates are reversing their recent trend, with the 10-year Treasury yield up around 0.11% this week (though they have made a nice reversal lower so far today).
Given the calendar (as we wrote last week, early January is super tricky) and the recent run (indexes up nine weeks in a row), the question is what the weakness means for the short- and intermediate-term outlook—and we share our thoughts below.
Right now, for the market as a whole, the intermediate-term still looks good—the trends of the indexes and the vast majority of stocks (yes, even growth stocks) are still up, while market internals are also still healthy. Moreover, while there are never any guarantees, it would be unusual for the market to totally up and die given the huge strength seen in November and December.
The short-term is murkier: After a big run, the market could easily digest further (especially with lots more news on the way in the next couple of weeks, including some big industry investor conferences). And for leading stocks, while many haven’t broken down, there’s no question the decline this week looks a bit iffy in more than a few names.
We’ve all seen more than a few curveballs from the market during the past two years, so we’re open to anything. That said, right now, we mostly advise taking things on a stock-by-stock basis: We wouldn’t make excuses for stocks showing abnormal weakness (there aren’t many, but like we just wrote, some leaders look iffy), so we favor paring back on those names—but we’re not willing to give up on stocks showing sharp-but-reasonable weakness.
Moreover, we do think many leaders could be setting up pullback-related entry points—though we’d like to see these names find a near-term low and bounce instead of catching falling knives.
All in all, we’re more bullish than not, but we’re also not going to ignore what’s going on: We’ll move our Market Monitor down to a level 7 and keep a close eye on things—if the indexes/leaders bounce back strongly, it could reveal many great entries, but for the moment we’re more in the manage-what-you-own mode and want to see buyers show up.
POTENTIAL BUYS
Dave & Buster’s (PLAY) had a huge, persistent run, but has pulled back now from 56 to just under 51 before finding a little support the past two days. We think a small position in this turnaround situation here or a bit lower (49 to 50) would be intriguing, with a stop around the 44 to 45 area.
Pinterest (PINS) had a beautiful run in November/December before exhaling from 38 to 35.5 on light volume. Frankly, a bit more time to rest wouldn’t be the worst thing, but a nibble in the 35 to 36 area, with a stop near 33 or 33.5, seems like a solid risk/reward.
Rates have backed up this week but remain in a downtrend, and homebuilders are the opposite—pulling back this week but still trending up. Toll Brothers (TOL) dipped from 106 to 98 (tagging its 25-day line) before finding some support his morning. Buying here or in the upper 90s, with a stop around 90, sounds fine by us.
United Rentals (URI) is in the same boat—dipping to its 25-day line after a strong breakout and run of late. A buy in the 540 to 550 area if you don’t own any seems reasonable, with a stop in the 490 to 500 range (near the 50-day line).
SUGGESTED SELLS
Partial Sells
DraftKings (DKNG) has bounced a bit the past two days but is still mired below its 50-day line after a bad start to the week. We’d at least lighten up and look for stronger situations
Full Sells
Monday.com (MNDY) – We were thinking differently earlier this week, but given MNDY’s failed breakout, we’ll sell on today’s bounce and cut the loss.
Nextracker (NXT) – another quick turnaround, NXT’s breakout has failed on giant volume
Samsara (IOT) – tripped stop. Another failure in the low 30s area going back many months.
SharkNinja (SN) – doesn’t look bad at all, but we’re getting out near breakeven after owning it for a month and a half; doesn’t look powerful.
Zscaler (ZS) – taking a profit
SUGGESTED STOPS
Advanced Micro (AMD) near 125
Agnico Eagle Mines (AEM) near 51
Axon Enterprises (AXON) near 235
Birkenstock (BIRK) near 44.5
Datadog (DDOG) near 111
Dave & Buster’s (PLAY) near 44.5
DoorDash (DASH) near 91.5
Gitlab (GTLB) near 56
Martin Marietta (MLM) near 468
Nutanix (NTNX) near 39.5
Nvidia (NVDA) near 464
Pinterest (PINS) near 33.5
Royal Caribbean (RCL) near 115
SharkNinja (SN) near 46
Snowflake (SNOW) near 182
Spotify (SPOT) near 184
UiPath (PATH) near 22
Vertiv Holdings (VRT) near 43.5
