For the past few weeks we’ve written about the narrow, divergent market environment, saying that, while not bearish (these things can keep going for many weeks or even months), they do raise the risk of a sharp character change—be it a general selloff or a sharp rotation.
The latter may be happening now, with yesterday seeing some truly extreme action, with the lagging broad market rallying sharply (the Russell 2000 Fund, IWM, rose 2.9%, while breadth was hugely positive) even as the red-hot Nasdaq 100 fell 2.2% and other growth measures sagged—all of which was egged on by a positive inflation report and a sharp drop in interest rates.
When it comes to an overall market view, we’re not going to make any grand declarations here—it’s been just one-plus day of this sort of action, so we can’t conclude that it’s going to carry forward for weeks to come. It’s possible the rotation is halted in its tracks, or maybe we simply see the buying pressures broadening out.
In terms of managing your portfolio, we have a couple of thoughts.
First, while many strong stocks have sold off, few have flashed abnormal action at this point. Thus, what to do with those types of names partly comes down to where you are in your portfolio: If you’ve been taking profits and partial profits on the way up, we’d likely raise some stops but see how it goes. If, however, you’re loaded up on AI/tech, you might consider trimming your worst performer or two.
Second, in terms of the broad market’s thrust, we’ll see what comes with our screens this weekend—the endless sideways action (not just in small caps but most of the market) led to a large number of solid-looking consolidations among individual stocks. If we see some real breakouts (as opposed to just off-the-bottom buying) there could be a wave of fresh buys.
As you can read, though, there are many coulds and maybes right now—the odds do favor a short-term peak in some of the hot names and a short-term low in the broad market, but beyond that, it’s too early to say. It’s possible the rotation continues, it stops, or (if all of us are lucky) the buying pressure simply broaden out.
In the meantime, we continue to advise taking things on a stock-by-stock basis, booking partial profits when they appear and staying flexible on the buy side. We’ll leave our Market Monitor at 7 but could update that come Monday’s issue.
SUGGESTED BUYS
Guardant Health (GH) had a very low-volume pullback after its huge-volume, eight-week rally, tagged its 10-week line and is bouncing on heavier volume this week. Hold on if you own some, and if not, we’re OK nibbling here (or closer to 30) with a stop around 27.
SUGGESTED SELLS
Partial Sells
Cava (CAVA) has been relatively strong, but was unable to get above resistance near 95—and now it and most other retail names have sold off sharply. If you have a good profit, we’d book some partial profits around here.
Cirrus Logic (CRUS) is off to a great start for us, popping this week on some positive Apple news (it’s a key supplier). We’d favor letting some shares go up here and seeing how the stock handles the tech rotation.
Corning (GLW) pre-announced earnings earlier this week and went wild on the upside—it looks great, but is very extended here, so we’d favor booking a little profit and seeing how it goes.
Full Sells
Freshpet (FRPT) – broke out for a day, then saw huge selling that tripped our stop. It has bounced back a bit, so if you own it you can consider using a stop near 122.
NetApp (NTAP) – looks fine but we don’t have the best entry point so we’ll take our modest profit.
Pinterest (PINS) – still sort of tight, but like so many names, couldn’t get going and is now under pressure; tripped stop.
SUGGESTED STOPS
We’ve raised and added more than a few stops today, giving us safety nets should sellers emerge but also allowing some leaders breathing room if this is “just” a short-term shakeout
ASML Inc (ASML) near 1,000
Birkenstock (BIRK) near 53
Broadcom (AVGO) near 1560
Burlington Stores (BURL) near 232
Carpenter Tech (CRS) near 100
Credo Tech (CRDO) near 27.5
Datadog (DDOG) near 122
Dutch Bros. (BROS) near 37
Guardant Health (GH) near 27
HP Enterprise (HPE) near 20.2
Hims & Hers Health (HIMS) near 18.9
Howmet Aerospace (HWM) near 77
Natera (NTRA) near 102
Onto Innovation (ONTO) near 209
Robinhood (HOOD) near 20.2
Sarepta Therapeutics (SRPT) near 144
Seagate Tech (STX) near 99
SharkNinja (SN) near 70.5
Taiwan Semi (TSM) near 165
Trade Desk (TTD) near 94
