The last three weeks have been as whippy as we can remember, with a huge selloff three weeks ago, a buoyant rally last week, and then a rotation (and, to some extent, a re-rotation) all within the past few trading days. As of Friday morning, the big-cap indexes are mixed, while small- and mid-cap indexes are up 2% to 4%.
The good news is that the evidence for the overall market looks solid. The intermediate- and longer-term trends are pointed up, many secondary measures (number of new lows, etc.) are encouraging and, as we wrote last Friday, the rush higher last week produced some rare signals that almost always portend higher prices down the road.
Thus, we’re leaning bullish overall and see the odds favoring higher prices in the months ahead.
The tricky part comes when analyzing the near term and when looking at individual leading stocks. Near term, the action has been hard to handle, with stocks moving around wildly on a daily basis. Moreover, while things have stabilized as the week has gone on, the rotation earlier this week put a dent in many growth names that look poised to get going. Said another way, it’s clear not every investor is rowing in the same direction.
We think the next few trading days will be key. If this is another two- to five-day rotation on headline news (we’ve seen a few of these quick rotations in the past year), a lot of leaders should continue to find support in the days ahead and even tighten up some. That would be a constructive sign that the buyers are stepping up. If, however, we see another rush lower in the leaders (and/or the major indexes), the rotation and volatility could be with us for a while.
As it stands now, we are optimistic given that most of the evidence is pointed up (trends of the indexes and most stocks are positive), but we’re not leaving our brains at the door, either—it’s fine to do some buying, but for the moment, we’d go relatively slow, stick with smaller positions and use looser loss limits to handle the volatility we’re seeing. If things shape up, there are many good-looking charts out there, but the overall environment (when it comes to growth vs. value, etc.) will be key in the near term.
Axon Enterprise (AAXN) is acting very well, with a persistent move to new highs in October, an orderly, low-volume dip with the market, a rush to new highs before/after earnings last week and now a modest pullback. We do think the stock, which is known for being fidgety, can pull in further, but it’s likely to be buyable—look for dips under 115, and use a stop around 100.
Shift4 Payments (FOUR) pulled back with the market in October but has acted very well since then, busting higher (it could be the beneficiary of an economic reopening) and pulling back modestly since on tapering volume. A small position in the 56 to 58 area could work, with a stop in the 51 area.
We just wrote up Uber (UBER) in Monday’s issue, but as opposed to many names it continues to act well—it did pop on Monday as it has its hands in the economic recovery cookie jar, and the retreat since then has been modest and volume has quickly dried up. Expect volatility, but it continues to look buyable here or on dips.
We have two sells this week—Datadog (DDOG) and Sea Ltd. (SE), the latter of which tripped our stop. As always, we could have more sells depending how things look come Monday.
Abercrombie (ANF) near 15.5
Avalara (AVLR) near 141
Brinker Int’l (EAT) near 42.5
Carrier Global (CARR) near 33
Deckers Outdoors (DECK) near 235
Freeport McMoRan (FCX) near 16.9
Freshpet (FRPT) near 116
Gap (GPS) near 18.8
Invitae (NVTA) near 41
Martin Marietta (MLM) near 243
Natera (NTRA) near 69
Qualcomm (QCOM) near 129
Quanta Services (PWR) near 58
Seres Therapeutics (MCRB) near 28.5
Square (SQ) near 163
STMicroelectronics (STM) near 31.5
Taiwan Semi (TSM) near 83.5
Target (TGT) near 153