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Top Ten Trader
Discover the Market’s Strongest Stocks

October 1, 2021

Odds favor that we’re still in an overall bull market, so holding most of your strong, profitable names makes sense.

A week ago, the question on our minds was whether the Monday breakdown (September 20) was a shakeout, but we also wrote that big breaks like that one (especially coming after long runs) usually lead to some further selling. And that’s what we’ve seen over the past week—coming into today, most major indexes were down in the 3% to 4% range, diving back below their 50-day lines, with many individual stocks doing the same.

To us, that simply keeps the majority of evidence on the negative side of the fence: By our measures, the intermediate-term trend is pointed down for the major indexes, and not surprisingly, another swath of stocks cracked near-term support given this week’s action.

Moreover, we’re seeing more bearish “volume clusters” out there—stocks that had been chugging higher for a while and then, right off the top, suffer three, four, five days in a row of big-volume selling. (Indeed, we see this pattern on the Nasdaq itself.) It doesn’t mean the market is going to fall 30%, but it’s simply telling you big investors have quickly shifted from buy to sell.

To be fair, we are seeing some rays of light out there. First, investor sentiment has finally started to retrench—the market’s action, combined with headline worries (Evergrande last week, debt ceiling and rising interest rates this week), has clearly taken its toll. We’re not seeing any pound-the-table extremes but, combined with the chop/tedious action of recent months, many have thrown in the towel (a good thing).

Plus, one thing that’s keeping us alert is the fact that, despite the selling, many names are still pulling back or consolidating normally. Yes, that can change, but oftentimes you’ll see the true market leaders crack before or in concert with the major indexes; this time around, a good number of the early-stage breakouts we saw in August are still holding.

Even so, we’re just playing this by the book: Looking at all the evidence, we’re in a correction, so it pays to play some defense by holding cash, cutting back on new buying and paring back on some names. That said, odds favor that we’re still in an overall bull market, so holding most of your strong, profitable names makes sense.

Going ahead, it’s simply a matter of seeing if the bulls can really step up and reverse the big-volume selling for a few days (today is a nice start but we need to see more)—when that happens, we’ll turn more constructive, but until then, we’re focused more on capital preservation.

Suggested Buys
Ambarella (AMBA) isn’t near a great entry point yet, but we’re flagging it because its action is impressive—yes, it’s taken a hit this week, but all selling volume has been light, the dip is tiny compared to the prior upmove, and AMBA remains well above all its moving averages (25-day line is down near 143). If it can hold above 150 for a bit longer, it could be worth a nibble with a stop near the earnings gap (130).

Chart Industries (GTLS) has pulled in a few days in a row and, frankly, looks like it’ll head even lower. But so far, the dip hasn’t been abnormal, and the 50-day line (near 179) is catching up—this looks like the first pullback after a clear base breakout, which is usually a decent-odds play. If you’re game, you could nibble under 190 with a stop around 179.

Most cybersecurity stocks are iffy at best, but Palo Alto Networks (PANW) continues to bask in the glow of its recent earnings gap—shares have basically meandered sideways and allowed the 25-day line to catch up. If you’re aggressive, you could start a position here with a tight percentage stop (just under 450?) and see how it goes; PANW certainly seems to want to go higher if the pressure comes off the market.

Suggested Sells
We have many sells this week. If you still own them and want to sell some/hold some or see how they bounce, that’s fine—but if you do, we advise using a stop just under this week’s lows.

Align Technology (ALGN) – tripped stop
ASML Holding (ASML) – tipped stop, bad breakdown
DocuSign (DOCU) – Below intermediate-term support, lower low
Lightspeed POS (LSPD) – short-selling outfit attacked it and it cracked
Livent Corp. (LTHM) – tripped stop
MercadoLibre (MELI) – tripped stop
Nvidia (NVDA) – tripped stop
ON Semiconductor (ON) – sector cracked, and the stock’s breakout failed
Rapid7 (RPD) – tripped stop
Sprout Social (SPT) – abnormal break after big run
Veronis Systems (VRNS) – clear breakdown

Suggested Stops
Academy Sports (ASO) near 39.5
Alkermes (ALKS) near 29
Avalara (AVLR) near 172
Avis Budget (CAR) near 93 (BILL) near 247
Builders FirstSource (BLDR) near 51
Celsius Holdings (CELH) near 80
Chart Industries (GTLS) near 179
Chipotle Mex Grill (CMG) near 1800
Horizon Therapeutics (HZNP) near 104
ICU Medical (ICUI) near 220
Innovative Indus. Prop (IIPR) near 223
KKR & Co. (KKR) near 58
LendingClub (LC) near 25.5
Macy’s (M) near 21
Marvell Technology (MRVL) near 59.5
Natera (NTRA) near 106
Nutanix (NTNX) near 36.5
Paycom Software (PAYC) near 465
Synaptics (SYNA) near 172
Teck Resources (TECK) near 23
Wingstop (WING) near 160
ZoomInfo (ZI) near 60
Zscaler (ZS) near 255