The major indexes have traded basically flat so far this week, keeping within the relatively tight five-week ranges that they began carving out in mid-December. Thus, nothing much has changed from earlier this week—the short-term trend is more of a coin flip, though the intermediate- and longer-term trends remain up.
Looking ahead, we’d expect volatility to begin picking up soon for three reasons. First, there’s only so long the market can trade so tightly; the S&P 500 has been confined to a 2.1% range since December 8! (The Dow Industrials have been even tighter, etching their tightest month-long range in decades.) Second, the 50-day lines have now caught up to the most of the indexes. (The S&P 600 Smallcap, in fact, is testing its 50-day line today.) And third, earnings season will really rev up next week, giving big investors reasons to buy or sell hundreds of different stocks.
Of course, there’s also today’s Presidential inauguration, which could cause some people to either come off, or retreat to, the sidelines. But as we said before and after the election, it’s best to just go with the evidence presented by the market and not try to “game” political events.
Today, the major trends of the market and most stocks remain up, so our advice is to remain mostly bullish. That said, we also advise being prepared for anything—have some stops in place in case the market takes a turn for the worse or if your stocks get dented on earnings. But also have your shopping list ready because we’re seeing a lot of potential setups out there to latch onto if the bulls charge back into stocks and if earnings season goes well.
BUY IDEAS
Many chips stocks continue to act well, and Cavium (CAVM 64) has an interesting chart—shares busted higher on big volume in early December, but have etched a tight consolidation since. You could nibble here with a tight stop near 60, or wait for a decisive push above 66.5 to buy, and use a stop near 61.5. Earnings are due out on February 1.
DeVry (DV 33) has shown excellent price/volume action in recent weeks, and its latest dip to its 25-day line (and support near 32) looks like a decent opportunity to enter. You can use a tight stop near 30 if you buy. Earnings are due out February 2, though, so it’s probably best to start small.
Freeport-McMoRan (FCX 15) has set up a volatile seven-week base following its huge-volume, post-election advance. We’re not opposed to buying some here with a stop below 14, or waiting for a big push above 16 (and using a stop near 14.5). Earnings are due out next Wednesday, so if you buy ahead of that, keep the position small.
Energy stocks have been just so-so, but many are now near strong support. PDC Energy (PDCE 76), for instance, has dipped to 72 twice during the past four weeks, and found some support yesterday near its 50-day line. Look for a move above 77.5 to buy, and use a tight stop around 71.5.
Thor Industries (THO 100) hasn’t done much since its big earnings gap and run higher in early December, not unlike most of the market. But it’s tightened up nicely in recent days on light volume. You could nibble here with a stop in the mid-90s, but we’d prefer to buy it on a move above 104 (which would probably signify a resumption of the stock’s upmove), and use a stop in the 96-97 range.
SELL IDEAS
Five stocks tripped their stops this week and should be sold: Arista Networks (ANET 90), Burlington Stores (BURL 83), Spirit Aerosystems (SPR 57), Stifel Financial (SF 49) and TechnipFMC (formerly known as FMC Technologies) (FTI 34).
Also, don’t forget to book some partial profits here or there when you have the opportunity. Western Digital (WDC 73) could be an example, as the stock has grinded higher for many weeks without much of a correction. You could consider taking off one-third of your shares if you have a good profit and trailing a stop on the rest.
Speaking of stops, we have a long list of them below. If the market does break down from here, we’ll quickly get kicked out of many names, though our tight stops (often just below the 50-day lines or recent support) should limit the damage.
SUGGESTED STOPS
AK Steel (AKS 9.6) near 9.2
Applied Materials (AMAT 34) near 32
Cavium (CAVM 64) near 60
Eagle Materials (EXP 99) near 95.5
Freeport-McMoRan (FCX 15) near 13.7
Grand Canyon Education (LOPE 58) near 55
HD Supply (HDS 41) near 39
HealthEquity (HQY 48) near 42.5
Helmerich & Payne (HP 79) near 74
MGM Resorts (MGM 29) near 28
MRC Global (MRC 21) near 19
Nvidia (NVDA 105) near 94.5
Oasis Petroleum (OAS 15) near 13.5
Oshkosh (OSK 70) near 64.5
Patterson-UTI Energy (PTEN 28) near 26
PayPal (PYPL 41) near 39.5
PDC Energy (PDCE 76) near 71.5
Quanta Services (PWR 35) near 33
RPC Inc. (RES 22) near 19.5
SVB Financial (SIVB 171) near 160
Signature Bank (SBNY 155) near 144
Steel Dynamics (STLD 36) near 33.5
Take-Two Interactive (TTWO 52) near 48.5
TD Ameritrade (AMTD 46) near 42
Tesaro (TSRO 148) near 133
Texas Capital Banc (TCBI 78) near 72.5
Thor Industries (THO 101) near 96.5
U.S. Silica (SLCA 59) near 51.5
U.S. Steel (X 34) near 31
Western Alliance Bancorp (WAL 49) near 46
Western Digital (WDC 73) near 65
XPO Logistics (XPO 43) near 41