The story remains the same for the market this week: The major indexes are all down (in the 1% to 2% range), which keeps the intermediate-term trend pointed down (every major index we look at is below its 50-day moving averages). Going along with that, the vast majority of individual stocks (about 80% of the S&P 1500) are in the same boat and hundreds of stocks are hitting new lows most days while only a couple handfuls hit new highs.
Thus, the sellers remain in control, and you should remain cautious. We’ve had that same outlook for a while now; our Market Monitor stands at a level 5, though depending on how things go with the market today and Monday, we may even drop it a notch from here.
Now, while it might sound a bit bizarre, we actually think the market has a decent setup here—we still see this correction as relatively normal given the mountains of bad news and uncertainties (skyrocketing interest rates, uncertainty in the Middle East) thrown at it. We can say the same for a decent number of individual stocks, which are showing a bit of resilience compared to the market.
When you throw in some “real” oversold readings seen at the end of September and many contrarian sentiment measures are flashing green (today’s example: Bank of America has a bull/bear sentiment measure that just triggered a buy signal—historically the average three-month return from that is 5.4%), we think there’s some dry tinder out there that could result in a big upmove if things go right.
First, though, the market is going to need a spark, whether that’s from a break in interest rates (this week alone, the 10-year Treasury yield is up 33 basis points!), less uncertainty overseas and/or from earnings season, which is really picking up now. All in all, we’re keeping our eyes open for signs of a turn, but until that comes, we’re remaining cautious with plenty of cash on the sideline and only small-ish new positions when we want to test the waters.
POTENTIAL BUYS
Dell Technologies (DELL) is not only acting resiliently, it’s trading very calmly, which is obviously a rarity in this environment. Of course, it’s possible the stock eventually gets taken down, but on a risk/reward basis, you could either consider buying some here with a stop around 62 (below the 50-day line and into the prior earnings gap), or watching for a leap above 70.5 to enter with a stop in the 63-64 area.
Elastic (ESTC) is another stock that refuses to go down—in fact, it hit marginal new highs twice this month. We wouldn’t chase it, but a dip toward 80 would be tempting for a small position, with a stop near 73.
SUGGESTED SELLS
Partial Sells
None this week
Full Sells
Apollo Global (APO) – tripped stop
Blackstone (BX) – tripped stop
Duolingo (DUOL) – tripped stop after Microsoft announced a competing product. If you still own some, you could hang on to the stock down to 148 or so, below yesterday’s low and the 50-day line. If you’re out, though, we advise just staying out.
Jabil (JBL) – we’ll take our profit off the table
Onto Innovation (ONTO) – broke with chip stocks this week
Ryder System (R) – starting to hack around and losing the 50-day line.
SUGGESTED STOPS
Atlassian (TEAM) near 185
Braze (BRZE) near 43.5
Crinetics Pharmaceuticals (CRNX) near 26
Dell Technologies (DELL) near 62
Diamondback Energy (FANG) near 158
Elastic (ESTC) near 73
Fabrinet (FN) near 156
Guidewire Software (GWRE) near 86
Neurocrine Biosciences (NBIX) near 106
Novo Nordisk (NVO) near 94
Nutanix (NTNX) near 33.5
PDD Holdings (PDD) near 95
Regeneron Pharmaceuticals (RENG) near 790
ServiceNow (NOW) near 540
Synopsis (SNPS) near 457
TechnipFTI (FTI) near 19.3
Vertiv Holdings (VRT) near 34.5
Western Digital (WDC) near 42
