The past two weeks have been 2021 in a nutshell. Two weeks ago, stocks came into trading having bounced nicely, but instead of following through, the indexes and leaders cascaded. Then, this week, when things looked close to going over the falls, we’ve seen an excellent rebound, with the major indexes recouping 45%-ish of their losses in just a couple of days.
Obviously, the snapback is encouraging, and not just because we’ve seen a couple of sharp up days—there are also plenty of stocks rounding into form, including a few that have stormed back to their prior highs on big volume. Plus, we’re glad to see a few key sentiment measures fall to levels not seen in a year or more, which effectively “reloads” the bullish cannon.
All that said, we need to see more to conclude that this month-long correction is truly over—even this morning, most major indexes are either below their 50-day lines and/or (in the case of small- and mid-cap indexes) firmly stuck in the middle of their multi-month ranges. Thus, the intermediate-term uptrend cracked on September 20, and by our measures, has yet to turn back up.
Thus, our approach hasn’t really changed, as we still think the onus is on the bulls to prove this rally is the real McCoy. As we’ve written many times this year, the next few days will be vital: Some further strength in the major indexes and (importantly) some big-volume breakouts would be a solid sign the correction is over, but in the near term, we still think it’s a 50-50 bet as to whether this bounce persists or leads to another leg down.
For now, then, we’re keeping our Market Monitor at a level 5 and sticking with the same game plan—small new positions only, a good amount of cash while holding onto resilient stocks. However, now’s the time to fine-tune your watch list in case the turn really has come; we’ll let you know if we have changes to that outlook on Monday’s issue.
Suggested Buys
Builders FirstSource (BLDR) had a great rally back to its old highs from mid-July to the start of September, then chopped around for five weeks and tagged its 50-day line earlier this week—but that brought in some buyers, with the stock again testing resistance near 55. If you’re game, BLDR is a decent risk-reward situation here; a small position with a stop around 51.5 makes sense.
Paylocity (PCTY) enjoyed an excellent run in August and September and has pulled back only to its 25-day line so far. A dip into the mid-270s would be tempting with a stop in the upper 250s (below the 50-day line, which is currently at 262).
Suggested Sells
Entegris (ENTG)
Innovative Industrial Properties (IIPR) – tripped stop but immediately snapped back. OK to hold if you still own it, with a stop near 224, though we’ll follow our system and kick it off the list.
Nutanix (NTNX) – almost to its stop and zero bounce with the market of late
Wingstop (WING) – tripped stop, zero bounce
Suggested Stops
Alkermes (ALKS) near 29.5
Avis Budget (CAR) near 103
Bill.com (BILL) near 248
Builders FirstSource (BLDR) near 51.5
Catalent (CTLT) near 125
Celsius Holdings (CELH) near 83
Chart Industries (GTLS) near 182
Horizon Therapeutics (HZNP) near 105
ICU Medical (ICUI) near 223
KKR & Co. (KKR) near 60
LendingClub (LC) near 26
Lululemon (LULU) near 384
Macy’s (M) near 21.5
Palo Alto Networks (PANW) near 445
Paycom Software (PAYC) near 455
Snap Inc. (SNAP) near 71.5
Synaptics (SYNA) near 173
Teck Resources (TECK) near 24