The market’s had a solid week, with most of the major indexes reaching new high ground, including the Dow Industrials’ much-hyped push above the 20,000 level. Better yet, we’ve seen many individual stocks resume their post-election uptrends in powerful fashion, often on big volume.
Now, in the short-term, we still see the market as a bit of a coin flip. First, we remain in the middle of earnings season, which causes a few blowups even in super-strong environments. Second, the market has a habit of rising above well-followed resistance (or, conversely, dipping below much-watched support areas) and then pulling back, effectively shaking out the late buyers. And it’s not like most indexes are decisively above their prior highs—one down day would put them back in their prior consolidation areas.
Throw in a few elevated short-term sentiment measures and the day-to-day action could easily have a few potholes.
But that’s mostly playing devil’s advocate. Looking at the intermediate- and longer-term picture, the trends are up, the broad market is healthy and the fact that we’re seeing a good number of stocks resume their uptrends on big volume hints that big investors are beginning to ramp up their efforts.
We nudged down our Market Monitor to a level 7 on Monday, but we’re planning on pushing it back to level 8 on Monday if the market holds its gains. And it could go higher if more and more stocks (especially growth stocks) emerge on earnings in the days ahead.
One question we’re getting a lot recently goes something like this: “I didn’t buy XYZ stock and now it’s a few points above your buy range. Can I still buy it?” Our general take is that there’s nothing wrong with doing some buying if you really want in, but (a) if a stock is above its recent buy range, you should keep any position smaller than normal (call it half to two-thirds of your normal amount, dollar-wise), and (b) if that company is going to report earnings soon, you might skip it altogether or keep the position even smaller to cut risk.
But the bottom line is that we’re seeing a lot of good action, and if that continues, there should be plenty of trains to hop on board in the days and weeks ahead.
BUY IDEAS
Oil stocks are a mixed bag (we have a couple of sells from that group; see below), but many have set up in nice patterns and could get going if the market remains strong. Atwood Oceanics (ATW 13) has tightened up around 14 in recent weeks—our thought is to buy on a move above 14.5 with a stop around 12.5.
Eagle Materials (EXP 108) surged out of a tight consolidation this week on a solid earnings report. Volume on the rally was excellent as well. EXP looks buyable around here or on dips, with a stop around 98.
KLX Inc. (KLXI 50) had a huge-volume advance in early December following earnings, then chopped around in the mid- to upper-40s for a few weeks. Now it appears to be resuming its uptrend on above-average volume. It’s buyable around here or on dips, with a stop near 45.
Chip stocks remain vibrant, and Micron Technology (MU 24) is one that’s showing some solid action. The stock pulled back and consolidated for four weeks after a great earnings gap in December, and this week, it looks to be resuming its uptrend on solid volume. It’s a volatile name, but we’re OK with a buy around here and a stop just below 21.5.
Quanta Services (PWR 37) is another infrastructure-related stock that had a big post-election rally, tightened up beautifully and has now shot ahead to new highs on great volume. Earnings are likely out in two to three weeks, but we’re OK with a small buy around here and a stop near 34.5.
Many financial stocks also appear to be resuming their uptrends. Texas Capital Bancshares (TCBI 83) reported a great quarter this week and investors pushed the stock up off its 50-day line to new highs on Thursday. It’s a bit thinly traded, but TCBI looks buyable around here with a stop near 77.
SELL IDEAS
Two of the steel stocks we have tripped their stops following earnings this week—AK Steel (AKS 8.0) and Steel Dynamics (STLD 36) are both sells. And we’re also going to pull the plug on U.S. Steel (X 33) simply because of the group’s weakness.
We are also selling two energy stocks. RPC Inc. (RES 22) isn’t a disaster, but it tried to get going this week and immediately failed following earnings. We think it’s best to sell and focus on other names. The same goes for Helmerich & Payne (HP 74), which broke below its 50-day line following earnings yesterday.
And don’t forget to book some partial profits when you have them—Clovis Oncology (CLVS 63) has acted great since our recommendation earlier this month. If you bought with us, consider taking some off the table, and holding the rest for a potential home run.
SUGGESTED STOPS
Applied Materials (AMAT 34) near 32
Berry Plastics (BERY 51) near 48
Cavium (CAVM 64) near 60.5
Eagle Materials (EXP 108) near 98.5
Freeport-McMoRan (FCX 16) near 14.5
Grand Canyon Education (LOPE 58) near 55.5
HD Supply (HDS 43) near 40
HealthEquity (HQY 47) near 43
MGM Resorts (MGM 30) near 28
MRC Global (MRC 22) near 19.5
Nabors Industries (NBR 17) near 15.5
Nvidia (NVDA 110) near 97
Oasis Petroleum (OAS 15) near 14
Oil States International (OIS 40) near 37
Oshkosh (OSK 72) near 66.5
Patterson-UTI Energy (PTEN 28) near 26.5
PayPal (PYPL 40) near 39.5
PDC Energy (PDCE 78) near 72
Quanta Services (PWR 37) near 34
SVB Financial (SIVB 176) near 163
Signature Bank (SBNY 163) near 150
Take-Two Interactive (TTWO 54) near 49.5
TD Ameritrade (AMTD 46) near 42.5
Tesaro (TSRO 160) near 136
Texas Capital Bancshares (TCBI 83) near 77
Thor Industries (THO 105) near 97.5
U.S. Silica (SLCA 59) near 52.5
Western Alliance Bancorp (WAL 50) near 46.5
Western Digital (WDC 79) near 70
XPO Logistics (XPO 43) near 42