The market is putting together its second straight constructive week in our book—nothing amazing, but the Nasdaq’s surge back toward its highs has held firm, while more stocks are rounding out launching pads. Meanwhile, the broad market is mostly just sitting around, though that’s acceptable given the recent runs in most indexes.
At this point, there’s some solid evidence that the sellers have left the building, at least for now. For instance, many stocks (growth especially, but even some other areas) have seen a lot of selling on strength in recent weeks (rejected quickly after testing any key resistance), but that has dissipated. Meanwhile, broader metrics like the number of stocks hitting new lows has dried up nicely the past few trading sessions.
With that said, we can’t say the buyers have really shown up, either. Yes, stuff has perked up, but volume had been extremely light (the Nasdaq’s total volume has been at least 32% below average each of the past five days!) and we still haven’t seen many breakouts.
That’s not a negative, per se, as many market low points are formed initially by the sellers running out of ammo. But we’ll need to see the big boys step up in a persistent way for the market and (new) leading stocks to have good runs.
All in all, we think the market has taken a couple of steps in the right direction during the past two weeks, which is obviously a good thing. But we think this is more about getting into a position to potentially enter a new, sustained upmove, rather than looking at the past two weeks as some sort of blastoff. There’s still more work to do before concluding the Fidelitys and T. Rowe Prices of the world are buying hand over fist.
Thus, we’re open to extending your line a bit, but given the divergences and overall lack of activity out there, we think it’s best to go slow, honor stops and use the market as a feedback mechanism—if stocks (growth and cyclicals) can push higher in a powerful manner, we’ll ratchet up our exposure, but if there’s more choppy action (or if sellers reappear) we won’t throw good money after bad.
SUGGESTED BUYS
Cheesecake Factory (CAKE) has had a big run with all cyclical/reopening stocks, which is a risk, but shares have been resting for a month and have tightened up nicely of late on very light volume. (The prior stretch of 10 weeks up in a row after a long-term breakout also bodes well.) If you don’t own any, we’re OK grabbing some here with a relatively tight stop near 53.5.
We still think energy stocks, after having huge runs for five months, could toss and turn for a while. But most are now five weeks into consolidations and sitting near their 50-day lines—yes, they could crack, in which case you’d lose a little dough, but they’re looking like decent risk/reward points here.
All look similar, but Diamondback Energy (FANG) is a good example—it fell from 88 to 70 and has chopped around since, with the 50-day line near 72.5. Two options: Start small here if you don’t own any with a stop a few points under the 50-day line (maybe 67-68), or wait for a resumption of the uptrend, buying some on a move back above 80 with a stop around 70 to 72.
SUGGESTED SELLS
Just one this week: Valmont Industries (VMI), which isn’t awful but appears to be churning after a big run.
SUGGESTED STOPS
Ameriprise Financial (AMP) near 219
Amkor (AMKR) near 21.9
Applied Materials (AMAT) near 117
Bausch Health (BHC) near 29.5
Big Lots (BIG) near 63
Cheesecake Factory (CAKE) near 53.5
Cimarex Energy (XEC) near 55.5
Devon Energy (DVN) near 20.5
General Motors (GM) near 54
Goldman Sachs (GS) near 310
Johnson Controls (JCI) near 57.5
Kukicke & Soffa (KLIC) near 46
Lyft (LYFT) near 57.5
Magna Int’l (MGA) near 82.5
Marriott Vacations (VAC) near 160
PDC Energy (PDCE) near 31
Shake Shack (SHAK) near 109
Sonos (SONO) near 35.5
Summit Materials (SUM) near 26
Thor Industries (THO) near 126
ZoomInfo (ZI) near 45.5