A week ago we said “up is good,” as the market’s bounce from its lows was a good thing to see—but, at day’s end, didn’t really change the overall environment. And that’s how we feel about this week, but in the opposite sense—we’ve seen renewed selling pressure on the Nasdaq and growth stocks, and this time, even some of the broad market has been caught up in it (like energy names).
Yet, overall, not much has changed: The Nasdaq and growth stocks remain in a correction, while the rest of the market is extended (been running now for five months, while the re-opening/cyclical theme is well known) but still in a firm uptrend.
When it comes to growth stocks, our biggest thought is this: After a few months where making money was relatively easy (stocks thrust higher, pulled back, then thrust higher again, etc.), making money today has become very difficult, with most names below moving averages and whipping around wildly (10% every few days).
That’s not to say things can’t change in the next couple of weeks, with growth stocks coming under control and shaping solid launching pads. But until we see evidence of that, we think it’s best to stay cautious, letting others fight it out on a daily basis while we wait patiently for the sellers to finish up their work.
As for the broad market, we have seen some cracks this week—small-cap indexes are down 3% or so this week and energy stocks are down more than 9%—but their intermediate-term trends are still up, and other cyclical areas (financials, transports, industrials) are all still acting fine.
Thus, as we wrote above, nothing has really changed with the overall outlook: The broad market is still in good shape, though the intermediate-term trend is a bit ripe, while the Nasdaq and growth stocks remain in a correction. You don’t have to be in your storm cellar, but keeping new positions small, holding some cash and aiming to enter on dips is the best course of action. Our Market Monitor remains at a level 5.
SUGGESTED BUYS
We do think energy stocks could pull in further after their massive moves in recent months, but we also are optimistic that pullbacks/rests for a couple of weeks could reveal some solid entry points.
Cimarex Energy (XEC) has enjoyed a big run and accelerated higher starting in late February. Now it’s finally pulling back, tagging its 25-day line yesterday—it’s still well above its 50-day line (near 53), but we’re OK nibbling here or on dips of another couple of points if you don’t own any.
It’s a similar story with Diamondback Energy (FANG), which kissed its 25-day line yesterday; a dip of another couple points would be tempting, albeit with a stop in the mid-60s.
SelectQuote (SLQT) is very volatile, but it’s hard to find better growth numbers, and the stock has bounced back nicely from its market- and share-offering-induced dip—plus it’s held firm this week despite renewed growth stock wobbles. We’re OK starting a position here or on dips with a stop in the 25 area.
SUGGESTED SELLS
Many financial stocks look great, but as we mentioned above, they’re getting a bit stretched, having run for five months with many standing well above support. Goldman Sachs (GS) is a good example—we like it longer-term, but taking a few chips off the table up here makes sense after the advance.
We’re also going to book our profit in SM Energy (SM)—we like the group but we’re going to book our 50%-plus profit in just a few weeks and look for some better-sponsored energy names on dips.
SUGGESTED STOPS
Ameriprise Financial (AMP) near 212
Amkor (AMKR) near 20
Applied Materials (AMAT) near 104
Canada Goose (GOOS) near 40
Cimarex Energy (XEC) near 54
Dynatrace (DT) near 48
Enterprise Product Partners (EPD) near 21.5
Freeport McMoRan (FCX) near 32
General Motors (GM) near 51.5
HubSpot (HUBS) near 419
Kukicke & Soffa (KLIC) near 42.5
Shake Shack (SHAK) near 108
Sonos (SONO) near 33.5
Tapestry (TPR) near 38.5
Teck Resources (TECK) near 20
Twitter (TWTR) near 62
Valmont Industries (VMI) near 219
Wix.com (WIX) near 285