The market has found some support as the week has gone on, turning what looked like a second straight dreadful week into a reasonable one. Near the open of Friday’s trading, the bigger-cap indexes were up modestly (1% or less) on the week, while small-/mid-cap indexes were up 1.5% or so.
Besides the bounce, there are some encouraging near-term signs. Sentiment is again getting bearish, but in terms of surveys (AAII weekly survey showed the fewest bulls and most bears since May) and breadth (as few as 15% of stocks were above their 50-day lines earlier this week; the lack of new highs is approaching levels not seen since the bear bottom of a year ago, etc.). Moreover, this recent spell was just the fourth time since 1993 that the S&P 500 Fund (SPY) notched nine straight lower daily lows, which is certainly washout-type action. (The prior three times occurred near low points.)
Looking at these and other factors, we’re not sticking our head in the sand—we’re not ruling out a traditional October low point after a bad August and September, with a lot of growth-y names certainly getting hit of late but not coming apart at the seams like has occurred during other major declines (like 2022, for example).
However, encouragement aside, the simple fact is we need to see much more before getting back on our intermediate-term horse: Even after this morning’s rally, every index is still a few percent below key moving averages, and the same goes for most stocks. And, of course, rates are in the opposite camp, with a recent dip good to see but the trend remaining up.
That doesn’t mean we need to see everything lift to new highs to get bullish, or rates to plunge a huge amount, but some strong action (especially resilient growth stocks popping back above 50-day lines or something of the sort) would probably be your first sign of a real character change.
All in all, then, we continue to advise a cautious stance—it’s good to see the market find some support, but now the key will be follow-through buying, not just in beaten-down names but in potential leaders. If so, we’ll extend our line, but right here we’ll leave our Market Monitor at a level 5.
POTENTIAL BUYS
We wrote about Onto Innovation (ONTO) earlier this month, and while the stock did pull in, it held its 50-day line and has begun to rally off that support area. The stock is extremely volatile, but a nibble here or on dips of a few points, with a stop in the 118 range (just under the 50-day line near 121) is a solid risk/reward trade.
Nutanix (NTNX) has been gyrating of late, but net-net, it’s held up very well (above its 25-day line), with an Investor Day earlier this week revealing some solid longer-term financial targets. A small buy here or on weakness with a stop near the 50-day line (just above 32) is something to consider.
SUGGESTED SELLS
Partial Sells
Fabrinet (FN) isn’t showing us a huge profit, but after pulling in the stock has raced to new highs. We think ringing the register on a few shares here makes sense while giving the rest some breathing room
Jabil (JBL) held above our stop and then soared on earnings this week, which is great to see. That said, given the environment, we might use this pop to sell a piece
Full Sells
Argenx (ARGX) – tripped stop
Light & Wonder (LNW) – tripped stop
Veeva (VEEV) – tripped stop
SUGGESTED STOPS
Apollo Global (APO) near 84.5
Array Technologies (ARRY) near 21.8
Baker Hughes (BKR) near 35
Bunge (BG) near 108
ChampionX (CHX) near 35
Duolingo (DUOL) near 144
Elastic (ESTC) near 70.5
Fabrinet (FN) near 145
Jabil (JBL) near 112
Marathon Petroleum (MPC) near 146
Northern Oil & Gas (NOG) near 38
Onto Innovation (ONTO) near 118
PDD Holdings (PDD) near 90
Saia (SAIA) near 380
