Editorial Note: Your next scheduled issue of Top Ten Trader will come out next Monday (December 21) as usual, but then it’s a little bit of a break—we might not have a Movers & Shakers update next week (we could squeeze out something brief on Wednesday, but don’t count on it), and Monday after that (December 28) will NOT have a Top Ten issue. We will be keeping an eye on email in between eggnogs, though, so don’t hesitate to get in touch if you have questions.
As we cruise toward the holiday season, it’s been another good week for the market—as of this morning, the S&P 500 is up nearly 2% while the Nasdaq, S&P 400 Midcap and S&P 600 SmallCap (now up seven weeks in a row!) all are up in the 2.5% to 3% range.
Obviously, this keeps the intermediate-term trend pointed strongly higher. In fact, looking at our trend model (called Cabot Tides and written about in every issue of Cabot Growth Investor), the market could probably suffer a 5% to 6% pullback from here without cracking the intermediate-term trend.
Of course, the flip side of that fact means that the indexes are extended to the upside in price. To be fair, time is also an important element—intermediate-term runs usually last longer than seven weeks (that’s how long it’s been since the post-election kickoff) as it takes time for big investors to finish their buying sprees. Even so, combine the overall market action with elevated sentiment measures and anecdotal signs of greed (hello AirBnB IPO) and risk remains on the high side when it comes to near-term potholes.
How that plays out is anyone’s guess—it’s more likely than not that the upcoming holiday trading period goes well (it usually does), but it’s also common for gains to be booked for tax purposes when the calendar flips. We’re not predicting any of that per se, but it’s good to know the odds.
As for our advice, it remains the same—we’re bullish, but we’re also cognizant of the risks. On the buy side, we’re focusing on names that have shown outstanding accumulation recently and/or are at solid entry points, while on the sell side, consider taking partial (or full) profits if you have a stock that’s had a big run for a few weeks while raising stops along the way.
SUGGESTED BUYS
Albermarle (ALB) had a beautiful breakout and upside move in November, and now the stock is finally chilling out for the first time, effectively moving sideways since late November as the 25-day line (now nearing 135) has caught up. We’re OK taking a swing at it here or on further dips, with a stop in the low 120s.
Sonos (SONO) staged a massive-volume pop on earnings a month ago, and after chopping around for three weeks, has followed through to the upside (and out to new all-time highs) on decent (not amazing) volume this week. Expect ups and downs from this lower-priced name, but starting a position here or on dips should work.
SUGGESTED SELLS
Enphase Energy (ENPH) – booking a profit as the stock moves out of trend on the upside
Invitae (NVTA) – tripped stop, failed breakout
Mattel (MAT) – booking a profit as the stock moves out of trend on the upside
Shift4 Payments (FOUR) – booking a profit after the stock popped. Feel free to trail a stop if you prefer near the 50-day line (now near 59)
Zendesk (ZEN) – again, booking a profit, as stock’s been advancing since late August and is a bit stretched. Not picking a top but simply adding another solid gain to our account
SUGGESTED STOPS
Align Technology (ALGN) near 440
Axon Enterprise (AAXN) near 115—still looks OK despite the one bad drop on a downgrade
Avalara (AVLR) near 159
Canopy Growth (CGC) near 23.5
Carrier Global (CARR) near 35
Exact Sciences (EXAS) near 119
Freeport McMoRan (FCX) near 21
General Motors (GM) near 39
HubSpot (HUBS) near 349
Huazhu Group (HTHT) near 45
Marvell Tech (MRVL) near 42.5
Moderna (MRNA) near 133
Norfolk Southern (NSC) near 224
Paycom Software (PAYC) near 395
Qorvo (QRVO) near 150
Qualcomm (QCOM) near 137
Quanta Services (PWR) near 64.5
Snowflake (SNOW) near 315
Square (SQ) near 195
SunPower (SPWR) near 19.5
Taiwan Semi (TSM) near 94
Target (TGT) near 165
Zillow (Z) near 116