This week has brought a wave of rotation—after strong initial gains, the Nasdaq has reversed to minor losses on the week (coming into Friday), with the S&P 500 up less than 1%. Meanwhile, broader indexes are up in the 1.5% range on the week and, for individual stocks, we saw some of the hot mega-cap growth names get smacked around some, while the rest of the market held firm or pushed higher.
In the near term, we’re half-expecting some more selling in the Nasdaq and some of the tech leaders—sentiment has gotten a bit giddy near term, which you can tell in a variety of ways (some of the weekly surveys, the fact that some speculative junk started to rally, etc.), and Thursday’s action was something of a shot across the bow. All in all, after two-plus months up, we could be nearing the point where the leaders pull in for more than just a day or two.
(We would note that the big Nasdaq 100 rebalancing is going into effect today, which may have had something to do with yesterday’s action. But we don’t like to make excuses for things—it’s best to just go with what you see.)
So, our advice is changing, right? No, not really. It’s really a stock-by-stock and portfolio-by-portfolio situation as we dive headfirst into earnings season: You want to honor stops, and don’t forget to book some partial profits here and there (which both puts profits in your pocket and also allows you to give the remaining portion some more leeway). And, of course, if you’re top-heavy in mega-cap, Nasdaq stuff, you may want to lighten up a bit.
But there’s still been very little in the way of abnormal action, and much of the market looks just fine. Moreover, as we’ve written the past few weeks, we’re placing more emphasis on the bigger picture, which continues to look very bullish.
All told, we’re not against doing some pruning after the recent run, and on the buy side, being a bit more discerning makes sense (looking for some deeper pullbacks and not plowing in ahead of earnings, etc.) given the possibility of some more near-term potholes.
But with the vast majority of intermediate- and longer-term evidence positive, we’re still leaning into the bullish case. Our Market Monitor remains at level 8.
POTENTIAL BUYS
Martin Marietta (MLM) had a very strong breakout in early May and ran to new highs above 460 before bobbing and weaving the past three weeks. Earnings are due next Thursday (July 27), but any dip into the 440 area should be a solid risk/reward situation, with a stop under the 50-day line (currently near 430).
We continue to like the look of oil service stocks. TechnipFMC (FTI) has hit a short-term wall near 18 but this comes after a few weeks of strong action that brought the stock well above its prior high (near 16). Dips toward 17 would be tempting, with a stop in the mid-15s.
SUGGESTED SELLS
Partial Sells
None this week
Full Sells
Rambus (RMBS)—tripped stop and 50-day line.
We’ll probably have at least a couple more sells come Monday as we’ll look to prune laggards and book some profits.
SUGGESTED STOPS
Abercrombie & Fitch (ANF) near 32.5
Apollo Global (APO) near 74.5
Axcelis Technologies (ACLS) near 161
AZEK Co. (AZEK) near 28
Builders FirstSource (BLDR) near 123
Cameco (CCJ) near 30.5
Datadog (DDOG) near 98
DraftKings (DKNG) near 23.5
HubSpot (HUBS) near 489
KBR Inc. (KBR) near 61.5
Li Auto (LI) near 32.5
Netflix (NFLX) near 410
Palo Alto Networks (PANW) near 226
Procore Technologies (PCOR) near 66
ServiceNow (NOW) near 540
Shopify (SHOP) near 61
