It’s been another mostly sour week in the major indexes, this time led by the Nasdaq—even after this morning’s gap higher, most major indexes are down in the 1.5% to 2% range. Interestingly, the 10-year Treasury yield is down this week, albeit by a mere 7 basis points.
Really, nothing has changed with the primary evidence: The intermediate-term trend of the major indexes and the vast majority of stocks and sectors is still down, while the trend of rates is up. Moreover, this week saw some sacred cows get nailed, along with a good number of resilient stocks.
At this point, the best pieces of evidence the market has going for it are secondary measures—sentiment is awful, more major oversold readings are flashing (the new high/new low ratio is down near major-low territory) and it’s hard not to notice the headline risks out there, with everyone talking about interest rates (and, in the real world, mortgage rates), the Middle East and the like.
Throw in the fact that year-end is often a good time of year (we’re not big calendar people, but it’s a gentle breeze at the market’s back) and there’s still dry tinder out there for a rally—and, given all the selling that’s been done both recently and over the past couple of years, a sustained bull move.
We know few are thinking about that these days, but we’ve been around the block a few times, and after nearly three years of no net progress in most indexes, it’s growing more likely the market is setting up a major run once we get past some uncertainties and, of course, once interest rates exhale for a while.
But, as we’ve been writing for a while now, we have to see the buyers step up first before you should commit any major capital to the market. Obviously, this morning’s bounce is a nice start, but we’ll have to see more to change our main tune—right now, we advise holding plenty of cash, limiting new buying and practicing plenty of patience. We’ll leave our Market Monitor at a level 4 today.
Two more points we want to make real quick based on an influx of questions this week.
The first is, if you’re not holding nearly as much cash as you’d like and own a bunch of poor performers, you don’t have to sell wholesale—in fact, we probably would advise against that—but we do think taking a step in the direction of the evidence (toward being more defensive) makes sense. If you have 10 “bad” stocks, maybe sell three or four, or sell half of six or seven; the exact move is less important than trying to get in gear with the evidence. Remember that, yes, the goal is to make back your losses (and then some), but you don’t have to make it back in the stocks you currently have.
The second is related to the above, but it concerns investors who (a) already have tons of cash but (b) are still holding some lackluster names (down, but not blown to smithereens). To us, this more comes down to portfolio management—if you just go by the chart of each stock, you could sell everything here, which isn’t a sin but isn’t our ideal path. Instead, if you have, say, five smaller positions that are iffy, maybe cut your worst one or two, or trim the biggest two positions, that sort of thing. That way you’re not simply holding and hoping, but you’re not selling wholesale, either.
OK—with that said, there will be better times ahead. We’ve been through these situations before and have been able to land many big winners on the other end. Stay alert, but right now, stay cautious until the bulls truly put up a fight.
POTENTIAL BUYS
TechnipFMC (FTI) tested its 50-day line a couple of times but rallied nicely on earnings yesterday. If you’re game, the move sets up a decent risk/reward, with an entry here and a stop near 20.
Range Resources (RRC) is another energy name that’s reacted well to earnings, with a shakeout to support in the 33 area before rallying. Obviously, volatility is higher, but if you’re looking for exposure, a nibble here or on dips to the 34-34.5 area and a stop near 31.5 or so is a solid risk/reward.
SUGGESTED SELLS
Partial Sells
None this week
Full Sells
Arista Networks (ANET) – big-volume break after Meta’s report, which is a huge customer
Atlassian (TEAM) – tripped stop
Fabrinet (FN) – tripped stop for our remaining shares
Guidewire Software (GWRE) – tripped stop
Meta Platforms (META) – double top and break on earnings
Novo Nordisk (NVO) – tripped stop/50-day line this morning
ServiceNow (NOW) – tripped stop; it bounced on earnings right after, so if you still own some, you could use a stop near 535, though shares don’t look great, so use a tight leash if you decide to hold
Synopsis (SNPS) – tripped stop
Vertiv Holdings (VRT) – big earnings reversal after a big run and sour market says there’s tons of overhead above here; we’ll exit on this morning’s bounce
SUGGESTED STOPS
CNX Resources (CNX) near 20.8
Crinetics Pharmaceuticals (CRNX) near 26.5
Dell Technologies (DELL) near 62
Diamondback Energy (FANG) near 158
Elastic (ESTC) near 73
Ely Lilly (LLY) near 535
Frontline (FRO) near 19.5
Neurocrine Biosciences (NBIX) near 106
Nutanix (NTNX) near 33.5
Palantir (PLTR) near 14.5
PDD Holdings (PDD) near 99
TechnipFMC (FTI) near 20.1
XPO (XPO) near 66
Zscaler (ZS) near 149.5
