First off, a quick note: The market and our offices will be closed next Monday (February 18) for President’s Day. Your next issue of Cabot Top Ten Trader, then, will be posted Tuesday, February 19 after the market closes. Have a great long weekend!
Back to the market, it continues to levitate higher, with the major indexes notching another set of solid gains this week (up 2% or so as we write this) and many leading stocks extending their gains. This vacuum of selling pressure keeps the intermediate-term trend pointed up for most indexes and individual stocks.
Big picture we remain very optimistic that the path of least resistance remains higher—the action of the market itself since the low, including the green light from the 2-to-1 Blastoff Indicator, looks like the initial thrust off a major low that should result in higher prices down the road.
We’re also impressed with how hesitant investors seem to be when embracing the rally—during the past five weeks, more than $10 billion has actually flowed out of equity mutual funds and ETFs (figures updated last night) despite the market rally. Moreover, a respected survey of institutional investors found them holding an above-average amount of cash. Both are positive pieces of anecdotal evidence.
Simply put, we remain very optimistic that the market can do well in the months ahead. However, there are a couple of things that should keep your feet on the ground.
First, our dependable longer-term trend model (we call it our Cabot Trend Lines) is still negative. Depending how today goes, we could be within a week of a buy signal, but we’ll have to see as the S&P 500 and Nasdaq continue to do battle with their 200-day lines. While it’s not a precise timing tool, there’s no doubt a green light would reinforce the market’s other bullish evidence.
Second, while the bigger picture looks good, there remains a decent chance we see some sort of pullback or rotation (as we’re seeing today) in the weeks ahead, which, along with earnings season, means picking your spots (and stocks) is still vital. Indeed, we’ve seen some resistance in recent days as the indexes have tried to move higher.
Overall, though, there’s no question the evidence is mostly bullish and generally improving by the week. Thus, we’re continuing to slowly increase our exposure—we’ll likely nudge our Market Monitor up to a level 8 in next week’s issue.
BUY IDEAS
Ciena (CIEN 39) might bob and weave a bit longer, but we like the look of its two-week rest, which comes after picture-perfect action during the prior few months. We’re OK buying some here or on dips of a point or so, with a stop in the 34 to 35 area. Earnings are due out on March 5.
Franco-Nevada (FNV 75) has shown excellent and “under-control” price action for the past few months, including a test of its 50-day line in January, a big-volume surge to new recovery highs at the end of that month and, now, an orderly dip back down to support in the 74 area. If you want in, you can buy some here with a relatively tight stop in the 70 area.
Planet Fitness (PLNT 59) has been going straight sideways since early January, which isn’t ideal action. But until proven otherwise, we’re taking the tight action as a positive as shares are within a stone’s throw of all-time highs. Earnings are out soon (February 26), but we’re OK taking a small position here and buying more if PLNT moves ahead on earnings.
Tencent Music (TME 16) remains a volatile recent IPO, but there’s no questioning the overall trend here; shares surged to new highs on big volume yesterday before this morning’s pullback. It’s a hot potato, but you can buy a small-ish position on this dip with a loose stop in the 14.2 zone.
SELL IDEAS
We don’t have any specific sales today, but now’s a good time to look through your portfolio and consider taking a couple of partial profits in some names that have run 15% to 20% (or more)—selling one-quarter to one-third of your shares and holding the rest not only books some profit, but will also allow you to give these names more rope when the inevitable pullbacks come.
SUGGESTED STOPS
Alteryx (AYX 69) near 64
Atlassian (TEAM 104) near 93
Azul (AZUL 29) near 27.5
Dexcom (DXCM 145) near 136
Etsy (ETSY 51) near 51.5
Ionis Pharmaceuticals (IONS 58) near 55.5
Pinduoduo (PDD 26) near 25
ServiceNow (NOW 226) near 206
Tencent Music (TME 15) near 14.2
Trade Desk (TTD 143) near 134