After a brutal couple of weeks for growth (especially) and the broad market (a bit near the end), this week finally saw a bit of encouraging action. No, the major indexes haven’t lit up the sky (the S&P 500 is flat and the Nasdaq is up around 1% on the week), but we have seen some support appear—the market fell Monday and Tuesday and gapped down sharply on Wednesday, but most stuff has bounced nicely since then.
Thus, we’d consider it a first step—the Nasdaq is now toying with its 50-day line (which isn’t the be-all, end-all when you’re in a trading range, but you’d still rather be above it than below it), while the S&P 500 has again bounced off its own 50-day line for the sixth time during this rally. Overall, we consider the market’s intermediate-term trend to be mostly neutral, but as has been the case for a while, it depends on what index/sector you’re looking at.
Now, to be fair, we don’t want to go overplay what’s happened the past couple of days. We’re still seeing lots of choppy and challenging action, with intense rotation that usually lasts four or five days before reversing. (Some strong turnaround and cyclical names have taken hits this week.) There’s not much that’s being sustained on the upside right now, which means making money is akin to threading needles.
Moreover, a lot of the recent moves have come from the stocks that have been the worst-performing stocks of late—we’re seeing a lot of stocks that fell from 100 to 75 and have now bounced to 83, that sort of thing. Better than the alternative, but nothing decisive.
Still, after a couple of horrid weeks, we’ll take it, and it sets up the game plan going forward. For growth stocks, we’re looking to see some big-volume moves through resistance (50-day lines, prior highs, etc.), and then those moves being held (i.e., not a good day or two that immediately falls back). And for cyclicals, we’re also looking for some power (off 50-day lines after pullbacks, or after earnings) and, when the groups sag, for names to respect key support.
If we begin to see that, we’ll begin to extend our line, but if not, we’ll stay relatively close to shore. Our Market Monitor remains at a level 6.
SUGGESTED BUYS
Snap On (SNA) isn’t thrilling story, but the stock’s uptrend has been smooth and steady for months, and it’s holding up very well during the recent turbulence. Shares only briefly dipped to their 25-day line before finding support. If you want in, we’re OK starting a position here or on dips of another couple of points with a relatively tight stop in the low 230s.
United Therapeutics (UTHR) hasn’t done much net-net since its big gap at the start of April, but the current pullback has brought the stock down to its 50-day line. Two ways to play it: Nibble here with a tight-ish stop around 180, or wait for the buyers to show up (on a move above 200 or so) with a stop in the mid-180s.
SUGGESTED SELLS
Four turnaround/cyclical names hit our stops during the drops earlier this week and are thus now sells:
Affiliated Managers (AMG)
Jack in the Box (JACK)
Levi Strauss (LEVI)
Middleby (MIDD)
Tractor Supply (TSCO)
SUGGESTED STOPS
ArcelorMittal (MT) near 28.5
ASML Holding (ASML) near 595
Bloomin’ Brands (BLMN) near 27
Boot Barn (BOOT) near 67
Callon Petroleum (CPE) near 33
Chart Industries (GTLS) near 140
Cimarex Energy (XEC) near 61
Cleveland Cliffs (CLF) near 17.5
Goldman Sachs (GS) near 333
Goodyear Tire (GT) near 17.9
Jabil Circuit (JBL) near 50.5
Nexstar Media (NXST) near 142
Nucor (NUE) near 87
Sally Beauty (SBH) near 21
Steel Dynamics (STLD) near 57
Summit Materials (SUM) near 29.5
Under Armour (UAA) near 20.9
United Therapeutics (UTHR) near 185
Williams Sonoma (WSM) near 160
Yeti (YETI) near 78.5