It’s been a very interesting week, with a lot of news and movement, though not a ton of progress in either direction. Coming into today, the Nasdaq was up about a half percent on the week, but that was the only thing in the black—every other major index was off 1% to 2% or more, even including the equal-weight Nasdaq 100, which was down 1% coming into Friday, and the equal-weight S&P 500, which was off 2%.
And that leads us to what is really the big story with the market now: While the Nvidia/AI stuff is grabbing the headlines (for good reason—we’ll have more on that in a sec), when it comes to the market, the narrow situation is growing more intense, and you can see that whether looking at the broad new high list (remains puny given where the big-cap indexes are), the equal-weight indexes (the S&P 500 EW (symbol RSP) actually hit two-month lows yesterday) or the percent of stocks above moving averages (nearly 60% of the S&P 500 itself is under their 200-day lines!).
More important to us is that the intermediate-term trend of the major indexes has actually worsened—it’s still neutral, but another week like this would likely have it turning outright negative. Combine that with another round of potholes for many high relative strength stocks (another batch of retail names got dinged this week) and we continue to think a cautious stance is appropriate.
Now, with that said, there are some positives out there that we’re not ignoring. First, on the index front, we’re not hugely unhappy to see a few defensive groups—everything from consumer staples to utilities to defensive health care—take it on the chin. We don’t root for anything to go down, and some of the action is likely tied to the recent rise in interest rates, but we take it as a small plus.
Among individual stocks, there are also many bright signs, too. Obviously, the AI field is hot, and that is the type of new, potentially revolutionary invention that the market often latches onto to launch a bunch of new leaders, if not a drive an entire uptrend. Even beyond that, we’re seeing many stocks (a) perk up nicely during the past two to four weeks, and (b) retreat normally this week.
To us, then, the keys going forward will be: First, can the overall market perk up from here, with some broader indexes gaining steam while the currently strong/resilient stuff does the same (if we see a huge rotation, that wouldn’t be great); and (b) can some of these leaders that have pulled back normally find support soon and resume their upmoves. If so, we’d likely extend our line.
For the here and now, though, we wouldn’t hide in your storm cellar, but we think small positions, plenty of cash and some nimbleness (taking partial profits when you have them, etc.) is your best bet. We’ll leave our Market Monitor at a level 5.
Inspire Medical (INSP) is a good example of what we just wrote about, as it took on some water this week (down on above-average volume), but hasn’t done anything wrong (still above its 25-day line, near 285, and breakout level, near 278)—so far, it looks more like a trend knockout sort of move. If you didn’t buy any recently, we’re OK nibbling here with a 10%-ish loss limit.
Retail has been very iffy, but Shake Shack’s (SHAK) breakout was picture perfect, and it got a brief boost afterward from news an activist investor was getting involved. Shares have pulled back since then in a very controlled way and still are in good shape—if you don’t own any, a small position here with a stop just under 60 or so seems like a decent bet.
(As a reminder, partial sales means selling a portion—between a quarter and a half of the position; the exact amount is your call—of your holdings to both book some profit and, ideally, give the rest of your stake a chance to motor higher over time.)
If you haven’t sold any yet, we would consider taking some profits in HubSpot (HUBS), which acts well but is extended and starting to chop around just a bit.
10x Genomics (TXG) – tripped stop after failed breakout
Agnico Eagle (AEM) – tripped stop as gold continues to melt away (stronger U.S. dollar)
BWX Technologies (BWXT) – complete breakdown out of nowhere
Las Vegas Sands (LVS) – tripped stopLennar (LEN) – starting to see homebuilders give way to the backup in interest rates
SiteOne Landscape (SITE) – much of the recent ramp has disappeared
Visa (V) – tripped stop on elevated volume
Wheaton Precious Metals (WPM) – gold/precious metal stocks have totally turned tail.
Biogen (BIIB) near 290
Builders FirstSource (BLDR) near 105
DraftKings (DKNG) near 21
Duolingo (DUOL) near 130
GFL Environmental (GFL) near 34.5
GXO Logistics (GXO) near 52.5
HubSpot (HUBS) near 435
Intra-Cellular Therapies (ITCI) near 58
KB Home (KBH) near 41.5
Legend Biotech (LEGN) near 61
Penumbra (PEN) near 289
Rambus (RMBS) near 54
Spotify (SPOT) near 136
Watsco (WSO) near 314