The market’s been all over the place in this holiday-shortened week, continuing the wild action we’ve seen of late. Net-net, after this morning’s jobs-inspired bounce, the major indexes are up decently on the week, with the S&P 500 up 1% and Nasdaq up 1.6%.
From a price/volume/trend standpoint, nothing has changed with the market during the past couple of weeks. Both the intermediate- and longer-term trends of the major indexes and most stocks remain down, so we continue to advise a defensive, cash-heavy stance. Indeed, as of yesterday’s close, just 16% or so of NYSE and Nasdaq stocks were above their 200-day lines.
However, as we wrote a couple of weeks ago, there are some legitimate reasons for hope out there, stemming from some historic oversold and (to a lesser extent) sentiment readings that occur just once every decade or so, usually near the start of bottoming processes.
Our “favorite” statistic was that we saw more than 1,000 stocks hit new lows on both the NYSE and Nasdaq for three straight days heading into the Christmas low. On a percentage basis, about one-third of all stocks hit new lows those days, a rare extreme.
And investors are responding—the updated fund flow statistics last night showed another $18.7 billion yanked out of equity mutual funds and ETFs. During the past five weeks, a whopping $94.6 billion have been pulled from these funds, a gigantic figure.
Do these figures mean a bottom has been reached? Not necessarily. But they do raise the odds that we’ve seen (or will soon see) a workable low in the market, and that stocks may have seen their peak in downside momentum. If all goes well, the current rally will last for a few weeks and, if/when any retests occur, they’ll be successful.
Thus, after a 20%-plus wipeout and some historic secondary readings, now’s not the time to stick your head in the sand. Some nibbling here or there is fine, and in fact, could very well be fruitful should more potential new leadership pop its head up (possibly during earnings season, which kicks off in a couple of weeks).
But we also don’t advise jumping in based on ifs and maybes. It’s best to stay mostly defensive until the trends turn up, which will take at least a couple of weeks even if the indexes rise from here.
BUY IDEAS
Etsy (ETSY 49) took on a bit more water than we’d have preferred during the December market slide, but it held above its 200-day line and today is pushing back above its 50-day line on good volume, which is a rarity in this environment. There’s still overhead to chew through, but if you want to nibble here with a loose stop near the December lows (42 or so), you can.
Kirkland Lake Gold (KL 26) has had a very persistent advance since mid-November, and it’s finally starting to pull back as this morning’s jobs report heightens the chance of further Fed tightening, which hit gold prices. Dips toward the 25-day line (now 24.1, but rising quickly) would be tempting, with a stop in the 22 area.
Chinese stocks continue to waver, but we’re impressed with Pinduoduo (PDD 23), which has held firm and has actually tightened up during the past couple of weeks. If you’re game, you could nibble here with a tight stop (maybe around 20.5), and consider buying a bit more if the stock pushes above 24 and the market gathers strength. Definitely worth keeping an eye on if nothing else.
SELL IDEAS
Mallanox Technologies (MLNX 85) got whacked on the Apple warning and broke down out of its consolidation. We’d sell or take it off your watch list.
SUGGESTED STOPS
As we mentioned in the last Movers & Shakers, we’re leaning against listing stops right now, since all positions are either small or stocks are mostly being used to add to our watch list. If you do buy, though, we would advise using the loss limits listed in each issue, and don’t hesitate to email me directly (mike@cabotwealth.com) if you have specific questions.
Once the market gets going on the upside and we take a more constructive stance, we’ll be back to listed stops per usual, and if something looks sick and should be sold (or taken off your watch list), we’ll list it as a sell here and in the Monday issue. But right now we’re casting a big wider net as we look to identify the leaders of the next advance.