The major indexes are mixed this week, with the Nasdaq down while the S&P 500 is flat and some broader indexes are up a percent or so following this morning’s open. And that keeps in place the factors that have existed in recent weeks: The intermediate-term trend is mostly down (call it sideways-to-down if you want), the longer-term trend is pointed south, there’s still plenty of selling on strength and growth-oriented stocks are taking up the rear, underperforming most everything else.
Now, we are monitoring a couple of secondary signs that look interesting. The first is one of our favorite measures of the broad market—the number of stocks hitting new lows on each exchange. For the Nasdaq, the figure showed a positive divergence (far fewer new lows) in December, when the index retested its June/October low, which is usually a sign the selling pressures are easing under the surface. And now, in the New Year, the NYSE figures are really drying up—each of the first three days saw sub-40 readings.
To be fair, early January often has many crosscurrents as big investors reposition their portfolios, and one of those ripples is often selling winners (as taxes have been delayed) and buying beaten-down names. Thus, we’ll see if this is a short blip or something more meaningful, but at this point it’s encouraging, and backs up some other things we see, too.
Also on the “encouraging” list is that individual investors are throwing in the towel, with a string of big outflows from equity funds and ETFs (another $16 billion last week; five-week rolling total remains near multi-year lows, a good contrary sign); and, while the Nasdaq looks worse due to Apple/Microsoft/Tesla and the like, most indexes have stopped going down during the past three weeks and aren’t far below their 50-day lines.
All of the above is to say that the howling winds and torrential downpour from mid-December have calmed down of late … but we still need to see the clouds part and the sun come out before advising you to put much of your hard-earned money in harm’s way. If we can see the indexes pop above resistance (this morning is a good start but more is needed) along with some real breakouts that show upside follow through, we could change our tune … possibly quickly, if the indexes retake long-term moving averages.
But, while we’re keeping our eyes peeled, we continue to think holding a good amount of cash, keeping position sizes small (maybe half or less of what you normally buy) and aiming for pullbacks is your best bet. We’ll leave our Market Monitor at a level 4, though we’ll let you know if anything changes come Monday’s issue.
Crocs (CROX) has stretched higher on low volume of late, but the fact that it’s been able to notch multi-month highs (and hold them) is notable. Not sure we’d chase it here, but a dip of a few points (mid-100s) and a stop near 94 looks like a solid risk/reward trade.
Halozyme (HALO) was looking great … which, in this environment, means sellers are likely to appear. And they did, pulling the stock down to its 50-day line, which is normal—and now shares are beginning to bounce a bit. If you don’t own any, you could nibble here, or wait for a push above 55.5 or so (to make sure you’re buying into a real rebound), using a 10% or so loss limit on the trade.
Partial sell: We like the China theme, and Pinduoduo (PDD) is a leader—but given the environment, we’re not opposed to selling a few shares of PDD on the latest pop, while holding the rest for what ideally will be a bigger move.
Enphase Energy (ENPH) – crack of support has morphed into follow-through weakness
Fluor (FLR) – tripped stop and big-volume plunge below the 50-day line
Insulet (PODD) – tripped stop, 50-day line and began to eat into its earnings gap
WillScot (WSC) – tripped stop, couldn’t hold 50-day line or support
Academy Sports (ASO) near 47.5
Affiliated Managers (AMG) near 150
Alnylam Pharmaceuticals (ALNY) near 215
Apollo Global Mgt (APO) near 61
Atkore (ATKR) near 108
Axon Enterprises (AXON) near 157
Catalyst Pharmaceuticals (CPRX) near 16
Celsius (CELH) near 94.5
Crocs (CROX) near 94
Emcor (EME) near 140
Five Below (FIVE) near 162
Impinj (PI) near 98
KLA Corp. (KLAC) near 359
Neurocrine Bio (NBIX) near 115
Super Micro Computer (SMCI) near 76
TechnipFMC (FTI) near 11.0
United Rentals (URI) near 334