It’s been a very, very interesting week in the market. From a top-down perspective, it wasn’t the biggest deal: As we enter today, most major indexes are up in the 1% to 1.5% range on the week. At best, this puts the intermediate-term trend back to neutral for the major indexes, while most stocks (north of 60% of them) are still languishing below their respective 50-day lines.
That said, we’re quite encouraged by what we see for a couple of reasons. First, the up action so far came after a horrendous Monday, when fears of the new Delta strain of the virus ripped through the market—oftentimes, what a sloppy, choppy market that’s been going on for months needs is a big shakeout to wipe out the weak hands, and that could be (emphasis could) what we saw.
Second, many growth stocks that had been setting up but, again, were sloppy and choppy, held up very well during the shakeout and are now leaping higher—a possible change in character.
And third, the headline bad news/tedious action has dented some sentiment measures; the number of bullish investors in the AAII survey this week was the lowest since last September, while the eight-week average of equity fund money flows also hit a multi-month low. We wouldn’t read too much into these, but they’re headed in the right direction.
Now, what we wrote in the first paragraph still holds true (it’s narrow and the overall trend is sideways at best right now), and of course we’re now in the heart of earnings season, which (as usual) will probably tell the intermediate-term tale.
In total, we’re encouraged by what we saw this week; we think there’s a chance this was a “decisive” week where the market’s music changed. But it’s too soon to conclude that—what we really need to see is a bunch of positive earnings reactions (off to a good start there) and upside breakouts (really the missing ingredient for the May-June rally).
If both of those occur, we’ll be looking to get fairly aggressive for the first time in months. If not, we’ll continue with the sticking-and-moving plan we’ve employed for months. For now, we think it’s good to extend your line in some of the growth-oriented stocks that have perked up.
Suggested Buys
Alnylam Pharmaceuticals (ALNY) had a giant shakeout right as we recommended the stock in late June, it held up beautifully during the market’s July slide and has quickly popped to new highs on great volume this week. We’re OK taking a stab at it here if you don’t own any, with a stop in the mid 160s.
ASML Holding (ASML) has been creeping higher for months along its 50-day line, and it again found support there during this week’s slide. But the Q2 report was well received, with the stock pushing to new highs on good volume on Wednesday and Thursday. It’s still jumpy on a day-to-day basis, but it looks buyable around here with a stop just under the 50-day line near 675.
Floor & Décor (FND) spent December through mid-July etching a big “base on base” chart pattern, with one consolidation (April-July) sitting on top of the prior rest (December-March). And now it looks like it’s broken out, with three straight huge-volume up days to new highs. It does have earnings out in early August, but we think you can start a position here or on any dips, with a stop in the upper 90s.
Suggested Sells
We have no suggested sells at this time after purging a bunch of names during the past two weeks.
Suggested Stops
American Eagle (AEO) near 32.5
Antero Resources (AR) near 12.6
Alnylam Pharm (ALNY) near 166
ASML Holding (ASML) near 675
Atlassian (TEAM) near 249
Bentley Systems (BSY) near 57.5
Bill.com (BILL) near 174
BioCryst Pharmaceuticals (BCRX) near 14.5
Commscope (COMM) near 19.2
Figs Inc. (FIGS) near 36.5
Lightspeed POS (LSPD) near 76
Natera (NTRA) near 107
Nutanix (NTNX) near 34
Sprout Social (SPT) near 80
Synaptics (SYNA) near 140
Tempur Sealy (TPX) near 37
United Parcel (UPS) near 204
Urban Outfitters (URBN) near 35
Zscaler (ZS) near 213