This has been one of the wilder weeks we can remember, with huge swings up (Monday), down (Tuesday), reversals (Thursday) and big overnight movements (last night and this morning). All told, though, the sellers did plenty of damage—as we write this, the S&P 500 and Nasdaq are both lower by 3.3% on the week.
The sharp retreat means that the nascent intermediate-term green light has been negated, and more broadly, the action makes it clear that (a) sellers are still lurking and (b) the environment is extremely news-driven. Combined with the still-negative longer-term trend (which turned negative in mid/late October), it means it’s best to remain in a mostly defensive stance. We’ll likely yank our Market Monitor back down a notch on Monday.
All that said, we are intrigued for a couple of reasons. First, we saw another small positive broad market divergence on the Nasdaq yesterday—465 stocks hit new lows on that exchange, compared to 561 back in October. That’s a decent sign of resilience.
Even more encouraging is the action of a growing number of potential leading stocks. Basically, we’re seeing more names that look like they may have hit their lows for this correction—that doesn’t mean they’re ready to go up yet, but many stocks are standing miles above their October and/or November lows, even as the indexes retested them again yesterday.
As we frequently write, good stocks can go bad in a hurry in a bad market, so we’re not presenting this evidence as a reason to plow into a bunch of stocks right here. But the fact is more and more stocks are trying to round into shape even as the correction has progressed, which is a good sign.
Ideally, yesterday’s huge reversal was the final shakeout in this correction, but we need to see a lot more evidence that the buyers are stepping up. If you did buy some stocks last week, that’s fine, and we wouldn’t advise throwing those new buys overboard quite yet, especially if they’re holding in there nicely. But overall, we still favor holding plenty of cash until we see some upside breakouts in the major indexes and leading stocks.
BUY IDEAS
Many cloud software stocks have showed excellent strength during the past two weeks, and Alteryx (AYX 62) is one of them—the stock’s relative performance (RP) line hit a new peak this morning. Buying a little here or (preferably) on dips of two or three points could work, with the idea of adding shares if the stock blasts above 64 (and the market turns healthy) in the days ahead. An initial loss limit in the 52.5 area is advised.
Guardant Health (GH 49) has been very impressive of late, blasting to new highs on big volume on Monday, holding firm during the Tuesday/Thursday wobbles and pushing to new highs this morning. It’s new and volatile, but the stock certainly looks like it wants to move higher if the market can get out of its own way. Try to buy some on dips of a couple of points, and use a loose stop near 38.
MongoDB (MDB 88) remains wild, but it’s hard to ignore its strength—not only did the stock survive its earnings report this week, but it surged to new highs on its second-heaviest volume day since coming public in October 2017. Two ways to play MDB: First, buy some here with a stop below the breakout point of 85 (call it 83-84), or second, look for dips back toward that breakout level to buy, and then use a stop around 75.
We still like the action with Starbucks (SBUX 66), which looks like a major turnaround situation. Shares have gone straight sideways in the 65 to 69 range since early November, though still remain extended above their 50-day line (now nearing 62). We’d be intrigued with a dip toward 64 if the market stays weak, with a stop around 60.
SELL IDEAS
Ollie’s Bargain (OLLI 71)
Tractor Supply (TSCO 91)
Ulta Beauty (ULTA 268)
SUGGESTED STOPS
Acacia Comm. (ACIA 41) near 39
Alteryx (AYX 62) near 52.5
Amarin Corp. (AMRN 18) near 15.5
Canada Goose (GOOS 61) near 58
Ciena (CIEN 32) near 30.9
Crocs (CROX 26) near 22.5
Decker’s Outdoors (DECK 125) near 121
Dine Brands (DIN 90) near 82
Eli Lilly (LLY 114) near 107
Exact Sciences (EXAS 72) near 65
Genomic Health (GHDX 75) near 69
Glaukos (GKOS 66) near 57.5
Guardant Health (GH 49) near 38
Mellanox Technologies (MLNX 94) near 87
MongoDB (MDB 88) near 75
Mosaic (MOS 34) near 32
Omnicell (OMCL 72) near 67
PayPal (PYPL 84) near 81
Petrobras (PBR 15) near 13.5
Repligen (RGEN 62) near 58.5
Spirit Airlines (SAVE 62) near 56
United Continental (UAL 90) near 86
Zebra Tech. (ZBRA 168) near 159