It’s been a very interesting week in the market. It started, of course, with Monday’s news-driven plunge, as fears of an implosion in the Chinese real estate market caused a big selloff that brought most indexes below near-term support. But growth stocks never really gave up the ghost, and the rally on Wednesday and Thursday was very encouraging, with most indexes coming into today up slightly on the week.
Now, by our measures, the overall intermediate-term trend is still down—yes, some indexes nosed back above their 50-day lines yesterday, but after a break like Monday’s we need to see more strength to conclude this was a shakeout. Moreover, as students of the market, we know that big cracks after extended runs usually (not always!) have some reverberations (i.e., another leg down or sharp selloff, etc.)—and today’s weak open could play into that.
More important to us than the action of the major indexes is that of individual stocks. Yes, there’s been some damage, and don’t get us wrong, the broad market is still iffy (coming into today, just 39% of Nasdaq stocks are even above their 200-day lines!). But a lot of stocks that have already had corrections during the past few months held up relatively well during the early-September weakness, with many rebounding right back to their highs during the past couple of days.
Long story short, the question is whether Monday’s high-profile wipeout was a shakeout, or at least one that cleared the air of sellers in many potential leading stocks. Right now, we do think that’s possibly the case, but as written above, we need to see more to conclude that—two good rebound days is great to see, but anytime one bad day would put you back in questionable territory (as today could), you don’t want to lean too far in one direction.
All in all, we think it’s best to be a little cautious here, holding some cash, cutting back on most new buying and seeing how things play out in the days ahead. If the market can build on the rebound and more stocks let loose on the upside, we’ll put money to work (and possibly get more aggressive than we have been in a while), but if the sellers reappear, we’ll stand pat. We’re leaving our Market Monitor at a level 5 for now.
Last note: If you have some questionable stocks that you held onto but have bounced, it’s fine to hold on—but using a stop around its lows from this week (maybe a bit above the low) makes sense. Again, if this was a shakeout (and the stock is a good one), it should hold and advance from here, but the stop should protect you if there’s a real leg down from here.
Suggested Buys
Avalara (AVLR) isn’t the strongest software name, but it’s one of many growth titles that held up well early this week and, on the weekly chart, has now chilled out for three weeks. If you don’t own any, you could nibble here or on dips to the 25-day line (near 183) with a stop in the low 170s.
Avis Budget (CAR) has finally let loose on the upside; granted, volume wasn’t overwhelming, but this looks like a “real” breakout after a couple of false starts from its three-month base. You could take a swing on it on dips of a couple of points with a stop in the low 90s.
You can never be sure with oil stocks, but many appear to have put the finishing touches on three-plus-month consolidations this week, with a couple lifting off. Devon Energy (DVN) is a leader in the group, and it busted to new highs yesterday on solid volume (actually, great upside volume on both Wednesday and Thursday). We’re not huge on chasing oil stocks higher, but any dip to the 31 to 32 area would be tempting, with a stop in the 27 area.
Suggested Sells
Starbulk (SBLK) – If you want to use a stop near 20, you can, but the setup that led the stock to Top Ten looks ruined
We’ll likely prune some more in the next issue, but we want to see how things play out the rest of today and Monday. In the meantime we’ve added/raised a bunch of stops below.
Suggested Stops
Academy Sports (ASO) near 39.5
Align Technology (ALGN) near 685
ASML Holding (ASML) near 800
Atlassian (TEAM) near 349
Avis Budget (CAR) near 93
Bill.com (BILL) near 247
Builders FirstSource (BLDR) near 51
Chipotle Mex Grill (CMG) near 1800
Horizon Therapeutics (HZNP) near 103
HubSpot (HUBS) near 643
Innovative Indus. Prop (IIPR) near 223
LendingClub (LC) near 25.5
Lightspeed POS (LSPD) near 103
Livent Corp. (LTHM) near 22.9
Macy’s (M) near 20.5
Marvell Technology (MRVL) near 59.5
MercadoLibre (MELI) near 1780
Nvidia (NVDA) near 206
ON Semiconductor (ON) near 45
Paycom Software (PAYC) near 465
Rapid7 (RPD) near 114
Sprout Social (SPT) near 114
Synaptics (SYNA) near 171
Teck Resources (TECK) near 23
ZoomInfo (ZI) near 60
Zscaler (ZS) near 254