The past three or four weeks, growth stocks, which have been in a correction since mid-February, finally worked themselves into position to get going if the buyers really stepped in. But they never did—of the few breakouts that tried to lift off, most lacked vigor and were quickly smacked back.
And now, this week, the levee broke, with numerous negative earnings reactions (even to supposedly good-looking reports) bringing many glamour names to new lows.
Meanwhile, the rest of the market remains in decent shape—the intermediate-term trend overall is pointed up, and most indexes actually tacked on gains this week, led by strong cyclical areas like financials and metals.
The risk, of course, is that if growth stocks are going to continue to implode, there’s a decent chance that selling could spill into the rest of the market, even if just temporarily; we saw that in late February and early March, when the S&P 500 retreated 6% as growth stocks caved in.
Combined with the fact that many of the broad market, cyclical areas are extended time-wise (been running since early November) and there’s always a chance of a near-term re-rotation (we’re seeing a bit of that this morning with growth bouncing and cyclicals down after the weak jobs number), we do think it’s best to stay relatively close to shore, holding some cash and picking entry points carefully.
That said, we’re not throwing in the towel—yes, it appears many growth stocks are going to need more time to set up again, but we’ll see how it goes and there are still a number of good-looking stocks in the broad market.
Overall, we’re likely to leave our Market Monitor at a level 6, but again, it’s all about where you look—growth stocks would probably have their own Monitor at a level 3, while the broad market would be an 8. We still think there are some solid opportunities out there, but things remain choppy, rotational and challenging, a good reason to go slow.
SUGGESTED BUYS
ASML (ASML) is definitely one of (if not the) leading chip equipment names, and so far, those names have held relatively firm despite the growth stock destruction. ASML has pulled in to its 25-day line—if you don’t own any, we’re game to buy here with a relatively tight stop in the 590-595 area.
Williams Sonoma (WSM) gapped up very strong on earnings in mid-March, but then staged a controlled pullback and consolidation for the past five weeks. Now buyers are beginning to test the waters, with shares popping back toward their highs. We’re OK taking a stab at it around here with a stop in the 165 area. Earnings likely aren’t out until mid-June.
SUGGESTED SELLS
Not surprisingly, we have a good-sized list of sales this week, most of which are there because they violated their stops. As an aside, don’t forget to book some partial profits if you haven’t yet in things that are hot and heavy (Nucor (NUE) and Affiliated Managers (AMG) are two examples). As for our outright sells, they are:
10x Genomics (TXG)
Align Technology (ALGN)
Dropbox (DBX)
Expedia (EXPE)
Kukicke & Soffa (KLIC)
Okta (OKTA)
Owens & Minor (OMI)
Pinterest (PINS)
Sonos (SONO)
Twilio (TWLO)
Uber (UBER)
SUGGESTED STOPS
Affiliated Managers (AMG) near 153
Applied Materials (AMAT) near 124
Boot Barn (BOOT) near 65
Brooks Automation (BRKS) near 89.5
Callon Petroleum (CPE) near 32
Cheesecake Factory (CAKE) near 57.5
Cimarex Energy (XEC) near 59
Cleveland Cliffs (CLF) near 17.5
Diamondback Energy (FANG) near 72
Goldman Sachs (GS) near 329
Goodyear Tire (GT) near 17.5
JetBlue (JBLU) near 18
Lam Research (LRCX) near 585
Marriott Vacations (VAC) near 165
Middleby (MIDD) near 167
Nexstar Media (NXST) near 140
Nucor (NUE) near 79
Nvidia (NVDA) near 559
Qorvo (QRVO) near 177
Sally Beauty (SBH) near 20.5
Scott’s Co. (SMG) near 229
Square (SQ) near 222
Summit Materials (SUM) near 28
Thor Industries (THO) near 135
United Therapeutics (UTHR) near 184
Urban Outfitters (URBN) near 35.5