It’s been a solid rebound week for the markets, but as has been the case lately, it really depends on where you look—many major indexes actually hit new highs yesterday, but the Nasdaq could “only” get back to its 50-day line, and so far this morning, we’re seeing some sellers reemerge.
As we like say: Up is good, so the rebound this week, even in the beaten-down growth arena, is a plus; if the Nasdaq/growth stocks had continued to implode after Monday’s awful performance, it would have been very abnormal. Plus, it’s hard to argue with the broad market hitting new highs, too. Thus, we would classify this as a constructive week.
In fact, as we wrote in last night’s Cabot Growth Investor, given the unusual occurrences of the past year, we’re not ruling anything out—it’s always possible the quick 10% Nasdaq correction (and 25%-plus pullbacks in many leading growth stocks) was enough to “reset” their upmoves.
But we always play the odds, and two things continue to stand out to us. First, historically, it’s not usually bullish when you have some indexes shooting into new high ground while the one that’s been leading (Nasdaq) is still technically in a correction. Such divergences rarely end without at least some further reverberations.
More important, when looking at individual growth stocks, the vast majority appear to simply be bouncing after sharp declines—falling from 100 to 70 and then rallying to 83, that sort of thing. Some, of course, look peppier (and we’ll look to highlight those in coming Top Ten issues), but most are in no man’s land at best.
Overall, then, we’re mostly sticking with the same stance as we wrote about on Monday—growth remains in a correction until proven otherwise, while the rest of the market looks fine, though the divergences are a risk. All in all, we still favor playing things cautiously, holding some cash and focusing new buying on either strong cyclical names when they pull back, or possibly on a resilient growth stock or two that’s shown buying power. We’re likely to leave our Market Monitor at a level 5.
SUGGESTED BUYS
Dynatrace (DT) is one of a few growth stocks that is showing constructive action—it’s basically held its major breakout from early February, as well as its 50-day line, and has now rallied nicely toward its old highs. We still expect some more shenanigans but starting a position here or on dips with a looser stop (mid-40s) is fine by us.
General Motors (GM) has had a big run since breaking out in October, so there’s a chance some pent-up selling pressures could emerge. But so far, GM looks great—it’s consolidated straight sideways during the past six weeks and has lifted nicely off its 50-day line (now above 51 and rising) this week. Buying some here or on dips with a stop under the 50-day line seems like a decent risk-reward.
Shake Shack (SHAK) fell sharply with most growth stocks two weeks ago, but it basically held its 50-day line (now near 112) and has bounced pretty well. We can’t say it’s out of the woods, this stock has effectively been resting since late January, moving sideways in a wide range (105 to 130) during that time. If you’re game, you could nibble here with a stop in the upper 100s.
SUGGESTED SELLS
After a swath of sells the past few weeks, we have none today, but you can consider taking partial profits in any strong cyclical names you’ve (a) owned for a few weeks and (b) have motored higher and are a bit out of trend on the upside. Deere (DE) might be a good example—looks great, but hasn’t had a pullback in a long time and is currently stretched 50 points above its 50-day line (near 315).
SUGGESTED STOPS
AGCO (AGCO) near 118
Amkor (AMKR) near 19.5
Cimarex Energy (XEC) near 54
Enterprise Product Partners (EPD) near 21.5
Freeport McMoRan (FCX) near 31.5
General Motors (GM) near 50
HubSpot (HUBS) near 419
Shake Shack (SHAK) near 106
Sonos (SONO) near 32.5
Tapestry (TPR) near 36.5
Teck Resources (TECK) near 20
Twitter (TWTR) near 60
Wix.com (WIX) near 285