It’s been yet another constructive week for the market—four in a row by our count. As of mid-morning Friday, the S&P 500 is sitting on a gain of 2.6% for the week, while the Nasdaq is up 2.7%.
What’s impressed us most is the clear change in character we’ve seen of late—whereas rallies in October and November were met with strong and decisive selling, the current upmove (despite running into lots of overhead resistance) has seen very little in the way of pullbacks despite some high-profile earnings misses, political uncertainties and the like. It’s good to see.
Also, looking at some secondary indicators, we’re pleased to see that, for the first time in months, investors aren’t getting giddy that the market has put together a good run, a positive contrary sign. This week’s AAII sentiment survey showed more bears than bulls, and $4.4 billion of money actually flowed out of equity mutual funds and ETFs during the past week, even after some historic outflows in December.
All that said, we’re still waiting for a green light from our intermediate-term model (we call it Cabot Tides in Cabot Growth Investor)—a bit more strength (or, frankly, a couple of days of sitting around) would probably do the trick. While we wouldn’t jump in with both feet based on that signal, it would be another sign that the worst has passed and you should extend your line.
Of course, taking a step back, there WILL be pullbacks at some point, possibly soon. But the real key will be the form those retreats take. Do the major indexes retreat just 2% or 3% (which is nothing given the recent rebound) before finding support? If so, it would be added confirmation that the sellers are out of ammo.
Conversely, if we see a couple of 2% down days in a row on big volume and no immediate bounce, it wouldn’t be the end of the world, but might tell you the market is ready to rest for a bit and probe support going forward.
Back to the here and now, there are still some headwinds the market has to face—we mentioned resistance in the major indexes (and many leading stocks) as one, and of course we still have earnings season to wade through as well. Thus, it’s not 1999 out there, and you should put money to work slowly as good-looking ideas offer solid entry points.
But, big picture, there’s no question the evidence continues to improve, and if our Tides gives an official green light next week, it will add to the good vibes.
BUY IDEAS
Bilibili (BILI 17) is one of a handful of Chinese names that looks ready to get going—in fact, after a quick shakeout to start the year, shares are now pushing to multi-month highs. BILI is very volatile, but we’re OK buying some around here and using a loose stop in the high 14s.
CyberArk (CYBR 79) held up well throughout the correction and has done very well so far this year, rallying toward its high in the low 80s. Like most stocks, we like that, despite some intraday selling up near its highs, there’s been no follow-on distribution—i.e., the stock hasn’t been able to retreat much. You could start a position here or on dips of a point or two, with the idea of adding shares on the way up. Earnings are due out February 14.
We’re impressed with many biotech names, including Incyte (INCY 78), which we just wrote up on January 7. The multi-month bottoming formation, the solid sales and earnings growth, the potential and the power as the stock has ripped to its highest level since last March are all encouraging. We wouldn’t enter here, but look for a “knockout” move of four or five points—starting a position on a dip like that (using a loss limit of 10% or so) would be a good risk-reward.
SELL IDEAS
On the sell side, we again don’t have any explicit sells today, but we’re keeping a close eye on Tesla (TSLA 315), which was looking proper but is seeing some very heavy distribution this morning—a close below 310 would make the chart look intermediate-term toppy.
We’re also keeping both Buenaventura (BVN 15) and Franco-Nevada (FNV 69) on tight leashes—Kirkland Lake (KL 27) looks like the real leader in that group, whereas BVN and FNV, while not broken, are sluggish.
We’re also a bit disappointed in Tableau Software (DATA 123), which showed fantastic relative strength during the market downturn but has seen repeated big-volume selling since the start of the year. A break of support in the 115-116 area would be a red flag.
SUGGESTED STOPS
If the market’s rally continues from here, we’ll likely reinstitute trailing stops for many of the stocks we’re tracking. At this point, though, simply using the loss limits in the issue (maybe bumping them up a couple of points if the stock is off to a good start) is your best guide.