After three weeks up in a row, the major indexes were flat-to-lower this week, with the lagging small- and mid-caps performing worst, and the leading Nasdaq holding up the best.
Overall, we don’t have many different thoughts when it comes to the market—in our view, most of the evidence is bullish, with Top Ten stocks generally acting great, the longer-term trend firmly up, and sentiment relatively subdued.
That said, we’re still wary given the fact that most indexes we track (S&P 500, NYSE Composite, S&P 400 MidCap and S&P 600 SmallCap) have yet to lift to new highs—these indexes haven’t made any net progress for anywhere from 10 weeks (S&P 500) to five months (S&P 600). In fact, small- and mid-cap indexes are again threatening to dip below their 50-day lines this morning.
Of course, these indexes are within shouting distance of virgin turf, so a good couple of days could do the trick. But until that happens, there’s risk that either (a) the stagnant broad market yanks the resilient Top Ten stocks lower, or (b) we see some rotation going forward, where some growth stocks cool off and money rotates into beaten-down or defensive sectors.
Still, as usual, we’re going with the evidence in front of us, and the fact is that the Nasdaq’s strength combined with the bullish action of individual stocks has us mostly bullish. At this point, we’d aim to focus new buying on stocks that have recently (past three weeks or so) reacted well to earnings, and have lifted out of multi-month consolidations in the process.
Conversely, we’d be careful buying super-strong stocks that had already been running for three or four months prior to their recent jumps—not that you should bail out of these names, but for new buying, it’s best to look for stocks that are earlier in their advances.
All told, we’re likely to leave our Market Monitor at a level 8, but could adjust it if the majority of indexes lift to new highs or, conversely, break recent support.
BUY IDEAS
Dave & Buster’s (PLAY 66) basically paused from December through mid-April, but has pushed to new highs in recent weeks. With some retail stocks acting better, you can consider a position here with a stop just under 62.
HubSpot (HUBS 70) rallied off its 50-day line in early April and capped off the upmove with a solid pop on earnings. Now the stock has eased lower for about a week but remains in good shape. If you’re game, you can buy around here with a stop near 64.
Melco Crown (MLCO 22) had a persistent advance to new highs in April, though now it’s begun to consolidate, partly due to a share offering. You could buy a little here, though dips toward the 25-day line (near 21) would be better.
Similarly, Yum China (YUMC 34) had a great earnings gap in early April and run to new highs in early May, before hitting some turbulence. Dips toward 33 would be tempting, with a stop in the 31 area.
SELL IDEAS
We have five outright sells this week, some because they tripped their stop and some because of soggy action: Bioverativ (BIVV 55), Builders FirstSource (BLDR 14), Sage Therapeutics (SAGE 70), Symantec (SYMC 31) and Teledoc (TDOC 30).
TDOC nicked its stop but immediately gapped up on earnings the next day—a pretty bullish pattern, so if you own some, we advise sitting tight. In fact, you could consider buying it back (preferably on dips) if you did get knocked out. But we’ll adhere to our stop level we listed in last week’s update.
SUGGESTED STOPS
ASML Holding (ASML 135) near 129
Applied Materials (AMAT 43) near 39.5
Arista Networks (ANET 146) near 131
Chipotle Mexican Grill (CMG 493) near 465
Copa Holdings (CPA 120) near 113
Coherent (COHR 245) near 205
Criteo (CRTO 54) near 50.5
Dave & Buster’s (PLAY 66) near 61.5
Grand Canyon Education (LOPE 78) near 71
HubSpot (HUBS 70) near 64
Huntsman (HUN 26) near 24
Jabil Circuit (JBL 29) near 27.5
Jazz Pharmaceuticals (JAZZ 152) near 148
KB Homes (KBH 21) near 19.5
Lam Research (LRCX 149) near 135
LendingTree (TREE 148) near 127
Madison Square Garden (MSG 201) near 196
Marriott Vacations (VAC 113) near 102
Micron Technology (MU 29) near 26.8
National Beverage (FIZZ 84) near 79.5
Paycom Software (PAYC 65) near 58.5
Portola Pharmaceuticals (PTLA 42) near 38
PRA Health Sciences (PRAH 69) near 64.5
Skyworks (SWKS 102) near 98
Square (SQ 20) near 17.8
Synopsys (SNPS 74) near 72
Take-Two Interactive (TTWO 68) near 62
Wabash National (WNC 22) near 20.5
Western Digital (WDC 90) near 82.5
Wix.com (WIX 76) near 70.5
XPO Logistics (XPO 55) near 49