From the start of this intermediate-term advance back in early November through most of January, there weren’t many bad things you could say—yes, sentiment was bubbly, and there was the occasional horrid day or severe bout of rotation, but the major indexes and most portfolios enjoyed a relatively smooth upmove.
However, the past month has thrown up many yellow (and this week, red) flags, especially when it comes to growth titles. The sharp late-January downmove was a bit abnormal, and while the rebound from there was very encouraging (indeed, that type of shakeout-and-recovery pattern bodes well most of the time), we’ve now seen the Nasdaq and many leaders give up all of that rebound.
More importantly, we’ve also seen a rash of growth stocks—and the Nasdaq itself—crack their 50-day lines, usually for the first time in many weeks or months. For us, that’s a reason to become more cautious, cutting back on new buying (not that we were going crazy on the buy side recently) and honoring stops.
Now, to be fair, we can’t say it’s a disaster out there, especially when it comes to the broad market. In fact, the intermediate-term trend of most indexes is still pointed up, thanks to resilience among small- and mid-cap indexes, along with the NYSE Composite. Sectors like financials, energy (though they did get hit yesterday) and the like are holding pretty well. And this morning’s growth stock bounce is welcome, though we can’t say it’s really changed anything.
We also want to say that, even when it comes to growth stocks, most of these look intermediate-term iffy—time could be needed to repair the damage and for the stocks to settle down, but we haven’t seen much in the way of eye-opening longer-term abnormal action. Said another way, while many stocks may need to build new launching pads, we still think most can resume their major uptrends down the road.
All in all, then, we’re not bearish; in fact, many stocks outside of growth are acting fine. But after big runs and now some breakdowns, we think it’s best to trim your sails, cut your weakest stocks and make sure you have stops in place in case the weakness in growth spills into the rest of the market. If the market rips higher from here (again), we’ll focus on some recent earnings winners, but if the selling spreads, we’ll turn more cautious.
On the buy side, we’re not opposed to it, but again, be selective—unless you’re a swing trader, avoid buying “low” in stocks that have just been crushed, instead aiming for names that have handled this week’s selling (and the last month’s wild ups and downs) in stride.
SUGGESTED BUYS
Bill.com (BILL) has pulled back sharply with everything else in growth-land, but because this came after a monstrous earnings move, it’s still in decent shape on the chart. BILL does have a history of tedious downmoves, so while one option is to start small here with a stop near 150, another is to wait to see if the stock can resume its uptrend, buying above 171 (and using a stop near 156).
We still think this week’s Top Pick, Wix.com (WIX), remains in good shape – we’re OK starting a position here with a loose stop in the low 300s.
Zscaler (ZS) got scorched this week, plunging from the mid 220s to as low as 190 on Tuesday, but last night’s quarterly report may have changed the game—the stock is up nicely today, and while further near-term shenanigans are possible, we’re OK nibbling here with a stop near the 200 mark.
As we wrote above, many non-growth stocks have barely flinched of late—that doesn’t mean they’re good buys here, but if the market either re-rotates into growth (and out of cyclical areas) or if the selling pressure continues and drags down the rest of the market, we think many could provide tempting entry points on dips. Affiliated Managers (AMG), Cimarex Energy (XEC), Goldman Sachs (GS) and LPL Financial (LPLA) are names we’d target if the market whacks them around next week.
SUGGESTED SELLS
While many names are still holding well, many succumbed to the selling this week and either tripped our stops or broke down outright, leading to a bunch of sells:
10x Genomics (TXG) – Just barely got tripped out. If you own it and want to use a new stop near 165 (Tuesday’s low), you could.Chegg (CHGG)
Cleveland-Cliffs (CLF)
CrowdStrike (CRWD)
eXp World Holdings (EXPI)
Floor & Décor (FND)
Guardant Health (GH)
Michael’s Stores (MIK)
MongoDB (MDB) –
NovoCure (NVCR)
PagerDuty (PD)
Palo Alto Networks (PANW)
PayPal (PYPL)
Pinduoduo (PDD)
Redfin (RDFN)
Square (SQ)
SUGGESTED STOPS
AGCO (AGCO) near 114
Agilent (A) near 120
Align Technology (ALGN) near 535
Analog Devices (ADI) near 147
Bill.com (BILL) near 150
CarParts.com (PRTS) near 47.5
Cimarex Energy (XEC) near 48
Enterprise Product Partners (EPD) near 20.8
General Motors (GM) near 48
Inari Medical (NARI) near 95
Redfin (RDFN) near 77
Schrondinger (SDGR) near 93
Shopify (SHOP) near 1180
Snap (SNAP) near 54.5
Sonos (SONO) near 31.5
Tapestry (TPR) near 35
Zendesk (ZEN) near 137
Zscaler (ZS) near 200