What can we say? It’s been another impressive week for the market, with pullbacks limited to a few hours before buyers pile in. Coming into Friday, the big-cap indexes were up 3% to 4%, while broader indexes were generally up in the 1% to 2.5% range. The action keeps the intermediate-term trend pointed up, and the broad market remains in generally good health, with few stocks hitting new lows and more names joining the upside parade.
Frankly, as we wrote earlier in the week, the market’s action has been just about everything a bull could have wanted a month ago, with all major indexes starting to participate and, more important, a vanishing of the sell-on-strength specter that haunted the market for most of the past 18 months, replaced by lots of breakouts and persistent buying action—both characteristics of big money diving in.
Now, after eight straight up weeks in the Nasdaq (granted, the first three were very modest), there’s little doubt things are getting near-term stretched. The Nasdaq itself is 1,200 points (round numbers) above its 50-day line and actually 850 points above even its 25-day line! More than that, it’s pretty clear that many of the worries and fears from a month or two ago (remember the regional bank worries?) have dissipated, with a little greed setting in.
Throw in the fact that there are still swaths of the market that are underperforming, and some sort of turbulence—be it a general pullback, some rotation, whatever—could be in store during the next week or two. That said, we would use this more on the buy side—at this point, it’s probably best to be careful about chasing things that are extended, and if you do, keep positions small. But beyond taking some partial profits here or there (we’re never against that), we wouldn’t be selling in anticipation of a huge decline.
Indeed, longer-term, we continue to see action that usually portends good things. One of the latest: When the S&P 500 hits at least an 18-month low (which it did last year) and then the weekly RSI (an overbought/oversold measure) moves above 60, the S&P’s average maximum gain during the next nine months has been 18%.
As always, we’ll see how it goes—after living through the past couple of years, we won’t put anything past the market, especially if the Fed decides to get super hawkish again (something that happened in February that derailed the January rally). But right now, there’s no question the big-picture evidence continues to improve—our Market Monitor remains at a level 7, though we may move that up another notch come Monday.
POTENTIAL BUYS
Duolingo (DUOL) remains crazy on a day-to-day basis, but it’s now seven days into a sharp but reasonable dip to its 25-day line. Further weakness into the 150-155 area would be tempting, with a stop just under 140 or so.
Rambus (RMBS) has been weaker than most chip names, which is something to watch, but the stock hasn’t done anything wrong, simply pulling in to its 25-day line after a monster move. If you don’t own any, we think a move back above 62 would be interesting, with a tight percentage stop near 57.
Spotify (SPOT) is at one of those points where it could go either way—if you own some, hold with a tight-ish stop. If you don’t, though, the recent tightness is encouraging—we’re OK buying some here with a stop in the 140 range, a few points below the 50-day line.
SUGGESTED SELLS
Partial Sells
Li Auto (LI) – nice pop out of a tight area but a bit stretched; sell some, hold the rest
Full Sells
ASML Inc. (ASML) – looks OK but not leadership
Biogen (BIIB) – tripped stop
Workday (WDAY) – take a quick-ish profit
SUGGESTED STOPS
Builders FirstSource (BLDR) near 108.5
DraftKings (DKNG) near 22.5
Duolingo (DUOL) near 139
Eagle Materials (EXP) near 158
GFL Environmental (GFL) near 35.5
GXO Logistics (GXO) near 56
HubSpot (HUBS) near 465
Intra-Cellular Therapies (ITCI) near 60
Intuitive Surgical (ISRG) near 302
Lam Research (LRCX) near 580
Mobileye (MBLY) near 38.5 – still giving it a chance after the big Intel share offering, but needs to find support soon
NexTracker (NXT) near 38
Penumbra (PEN) near 303
Rambus (RMBS) near 57
Spotify (SPOT) near 140
Take-Two Interactive (TTWO) near 130
