It’s been an interesting week, to say the least, so we’re going to start by telling you what we see and then move on to a few thoughts.
First and most importantly, from an evidence point of view, nothing much has changed from a week ago: The intermediate-term trend is pointed down, with most indexes well below their 50-day lines, and the broad market is still unhealthy, with a huge uptick in new lows since the bank maelstrom began last week.
Second, individual stocks are still mostly under pressure, led by financials (of course) as well as anything economically sensitive; at this point, fewer than one-quarter of all NYSE and Nasdaq stocks are above their 50-day lines.
That said, it’s also hard not to notice that many potential leaders (especially growth-y names from recent Top Ten issues) are more resilient than many others. Even on a top-down basis, the Nasdaq is the most resilient major index (it’s not strong, per se, but stronger than other indexes) and is even performing about in line with defensive stocks like consumer staples, not something you’d expect to see in such a big selloff.
As for our thoughts, we start with the primary evidence—the fact that most indexes and stocks have cracked at least their intermediate-term uptrends—and think a cautious stance makes sense. Our Market Monitor was at a level 5 on Monday, and that (or maybe a 4) makes sense.
As for the financial panic, two things. First, these things tend not to go away in a day or two or four; there are usually reverberations fundamentally, plus it often takes time for perception to change and big investors to reposition their portfolios. Of course, if that doesn’t happen this time (say we rip higher from here), we’d consider it to be ultra-bullish—but odds favor that not happening.
Second, though, these sorts of panics often happen “near” market bottoms—“near” could mean a couple of months and not until after we see lower prices, but the point is that these things usually change the market’s focus from “what is the Fed going to break if it hikes too much” to “what is the Fed (and maybe Uncle Sam) going to do fix what’s broken.” Just something to keep in mind.
And our third thought is what we mentioned above—the fact that growth-oriented measures and many stocks are holding up relatively well is a character change, as these issues have led the downside (or least participated in) every leg lower. That can change in a heartbeat, but at this point it’s slightly encouraging.
Even so, slightly encouraging isn’t actionable at this point. All in all, we’re not opposed to some nibbles at good risk/reward entry points in resilient stocks, and we do advise giving your resilient stocks a chance to continue holding up. (Partial profits are OK but we wouldn’t sell all your best-looking names.)
But with most stocks and sectors in intermediate-term downtrends here, the odds favor more weakness and/or shenanigans in the near-term at least, so it’s best to be overall cautious and see how things play out.
BUY IDEAS
Agilon Health (AGL) got yanked lower last week, but has actually been up every day this week and is near new recovery highs. There’s still old overhead from last year to deal with, but the relative strength is impressive—if you don’t own any, a small position in the 24.5 to 25 range would be intriguing, albeit with a looser stop near 21.5.
Palo Alto Networks (PANW) is acting just fine, with a grudging pullback to its 25-day line (which included some buying volume support on the way down) followed by yesterday’s pop. We’re OK with a nibble in the mid/upper 180s with a stop in the 170 area.
Penumbra (PEN) has had a good-sized run since early November, so maybe it needs more of a break—but after a post-earnings wobble, the stock’s recent dip has been very well controlled, with support near the 50-day line and some buying yesterday. If you want in, you could start small here with a tight stop (percentage-wise) near 242.
SUGGESTED SELLS
Partial Sells
None this week
Full Sells
Allison Transmission (ALSN) – cracked with most economically-sensitive names this week
Autoliv (ALV) – stopped out
Group 1 Auto (GPI) – stopped out
Jabil (JBL) – broke down on earnings
Sarepta Therapeutics (SRPT) – some serious shenanigans here as the FDA supposedly refutes the firm’s claim about its main drug. We’d sell at least some of your shares today to respect the weakness – we’re out in full because of the loss limit.
Southern Copper (SCCO) – stopped out
Transocean (RIG) – tripped loss limit as oil stocks implode
Wesco (WCC) – same as RIG but with economically-sensitive stuff
SUGGESTED STOPS
Sports (ASO) near 54
ATI Inc. (ATI) near 35
Emcor (EME) near 150
Five Below (FIVE) near 189
Hexcel (HXL) near 64
Palo Alto Networks (PANW) near 170
Penumbra (PEN) near 242
Pulte (PHM) near 52.5
Super Micro Computer (SMCI) near 85
TopBuild (BLD) near 185
Wynn Resorts (WYNN) near 98
