It’s been a mild down week for the major indexes, most of which are down in the 0.5% to 1% range, though it felt a bit worse to us for a couple of reasons. First, early in the week, we saw the sellers step up once again in the growth names, causing many to fail at their prior highs or at key resistance (like their 50-day lines). Second, we’re seeing more and more churning and selling among some of the strong broad-market areas like financials, transports and even chip stocks.
Thus, nothing has changed with our thinking: It’s still a less-is-more environment, with few stocks letting loose on the upside and rotation and news items (like yesterday’s capital gains tax rumors) causing money to slosh in and out of sectors every few days. While we’re not seeing a slew of breakdowns, we’re also not seeing many breakouts, with the market remaining in a spin cycle of sorts.
A lot of this can be seen just by watching the action, of course, but there are broader measures that show it too. The Nasdaq, for instance, has been retesting its highs from February during the past week. But during this time, the maximum number of stocks hitting new highs was just 257, compared to north of 700 in mid-February. That’s not predictive of doom, just descriptive of how few sustained trends are out there.
With all that said, we’re actually seeing more and more potential setups out there—as we’ve written of late, as time has passed during this correction, there are now many more early-ish stage stocks (mostly growth stocks at this point, but a few cyclical names too) that have etched launching pads for eight to 13 weeks or so. If earnings season produces a good number of positive earnings reactions, there could be a bunch of high-odds buying opportunities.
However, it’s sort of a “wait until you see the whites of their eyes” situation—if you want to nibble ahead of earnings reports, that’s fine, but we wouldn’t advise going whole hog until you see a good-volume breakout after the news.
As mentioned above, nothing has changed right now, as we’re likely to leave our Market Monitor at a level 6 and take what comes.
SUGGESTED BUYS
Cheesecake Factory (CAKE) had a quick shakeout below its 50-day line before popping back above the line on decent volume yesterday. It has earnings next week (April 28), so you could either nibble here or just watch for a bullish earnings reaction, all while using a stop near the recent low (around 55).
LGI Homes (LGIH) has had a good run and is finally seeing a little distribution. But barring a market implosion, our guess is the first pullback of a couple of weeks will prove buyable—if the stock pulls back into the mid 150s, it’s probably worth a small buy with a stop in the low 140s.
Middleby (MIDD) initially gapped down a bit on earnings two days ago but found major support at its 50-day line and surged to new highs on big volume. It’s a touch extended here, but this move comes after a few weeks of tight trading, so we’re OK taking a swing at MIDD here or on dips, with a stop in the 162 range.
SUGGESTED SELLS
DraftKings (DKNG)
General Motors (GM)
Micron Technology (MU)
Shake Shack (SHAK)
SUGGESTED STOPS
Aclaris Therapeutics (ACRS) near 23.9
Affiliated Managers (AMG) near 144
Alliance Data (ADS) near 99
Amkor (AMKR) near 22
Applied Materials (AMAT) near 121
Callon Petroleum (CPE) near 30
Cheesecake Factory (CAKE) near 55
Cimarex Energy (XEC) near 57
Cleveland Cliffs (CLF) near 16
Dropbox (DBX) near 25
Goldman Sachs (GS) near 319
Kukicke & Soffa (KLIC) near 48
Lam Research (LRCX) near 575
Lyft (LYFT) near 58
Marriott Vacations (VAC) near 164
Middleby (MIDD) near 162
Scott’s Co. (SMG) near 220
Sonos (SONO) near 38
Summit Materials (SUM) near 27
Thor Industries (THO) near 129
TripAdvisor (TRIP) near 47
Urban Outfitters (URBN) near 34.5
Wayfair (W) near 299