The sharp dip that started late last week continued early in the week, but since then the market has stabilized somewhat—as of Friday morning (after Fed chief Powell started to speak, with what most see as some hawkish words), the major indexes are down in the 2% range, and, looking at their charts, the pullbacks to this point have been sharp but normal, with most hanging around their rising 25-day lines and still 3% to 4% above their rising 50-day lines. Yes, things could change, but the action to this point keeps the intermediate-term trend pointed up.
Possibly the most encouraging thing during this recent bout of turbulence has been the action of high relative strength stocks—while there have been a couple of duds, most names have also pulled back normally and bounced off obvious support (like the 50-day line), while some others have ignored the market altogether, actually bounding to new highs during the past day or two.
To be fair, some of the secondary positives we saw perk up since mid-July have retrenched somewhat—the number of stocks hitting new lows on the NYSE has expanded to north of 40, while our Aggression Index (looks at the growthy Nasdaq vs. the defensive consumer staples) is back on the fence.
Neither of these are bearish, but they basically fit pretty nicely with most of the evidence out there—this pullback looks normal to this point, which keeps the encouraging vibes going from the past few weeks. But it’s also hard to conclude that big investors are truly flooring the accelerator quite yet, with a lot of stocks and indexes finding resistance near long-term moving averages of late.
This is all a long-winded way of saying we think our recent approach remains the best—we’re leaning more bullish but also advise going slow and being selective, as few names are running away on the upside. Now, if we see more and more leaders take off (especially if it’s in concert with the major indexes doing the same), we’ll definitely turn more constructive, but for now, we’re leaving our Market Monitor at a level 6.
Last note, as there’s been a ton of hubbub about this week’s inflation data and Fed talk coming into today: It’s good to be aware of what’s going on in the world and the economy, but it’s far better to stay focused on what’s actually going on in the market. Right now, that means slowly extending your line.
SUGGESTED BUYS:
Cadence Design (CDNS) has been pulling back for the past couple of weeks, nosing below its 25-day line on very low volume. It could pull in further, but if you’re not in, we think it looks like a decent entry point in the low 180s, with a stop near 170. If you want to be “safer,” you could wait to buy on a push above 187 or so, with a stop in the low 170s.
Gitlab (GTLB) does have earnings September 6, but we’re intrigued with the developing setup—after a push to six-month highs, the stock did get caught up in the market’s retreat, but found support near the 50-day line (now at 58.5 and rising) and bounced pretty well. There’s risk, but we’re OK with a buy here or down toward the 60 area, with a stop in the 56 area.
SUGGESTED SELLS:
Partial Profits
If you’ve grabbed some commodity names that have popped in the past couple of weeks, we wouldn’t hesitate to let a few shares go of a couple of them and then see how the market shakes out. A few examples would be CF Industries (CF), the coal stocks (ARLP and CEIX), and Petrobras (PBR). Outside of commodities, Day One Pharma (DAWN) would be another candidate to put a little profit in your back pocket.
Outright Sells
Argenx (ARGX) – Looks OK but not much power. Taking a profit.
Frontier Group (ULCC) – good looking setup now under pressure.
SUGGESTED STOPS:
While we have just two sells, we have tightened a few stops and added some new ones should the sellers step up here. We could have more sells come Monday depending on how things play out.
Alliance Res. Partners (ARLP) near 22.5
Axonics (AXNX) near 65.5
BioMarin Pharm (BMRN) near 89
Consol Energy (CEIX) near 64
CrowdStrike (CRWD) near 184
Day One Pharm (DAWN) near 20
Enphase Energy (ENPH) near 235
Gitlab (GTLB) near 57.5
Lantheus (LNTH) near 75
Lattice Semi (LSCC) near 56
Monolithic Power (MPWR) near 477
Nexstar Media (NXST) near 189
Neurocrine Bio (NBIX) near 99.5
Ollie’s Bargain Outlet (OLLI) near 61.5
Scorpio Tankers (STNG) near 36
Trade Desk (TTD) near 62