The market has generally taken a bit of a breather, with the major indexes relatively flat for the week as of this morning. That said, we did see a small change in the market’s character this week, with many leaders since the December low taking a rest (including a few that took earnings-related hits), while money has flowed into some other off-the-bottom stocks and sectors.
Indeed, we’ve seen just two days during this rally where more than 100 stocks on the Nasdaq hit new-high ground, with the vast majority of readings below 80. So it’s fair to say that, as many stocks have raced back into resistance, they’re finding some selling, while buyers temporarily move on to other names.
None of this is negative or unusual—after huge runs, it was only a matter of time before many leaders rest (especially as a bunch are reporting earnings this week and next), and big picture, this kind of rotation is probably a good thing for the overall market.
Long story short, consider this a heads up to give your best performers some room to breathe; many stocks have earned the right to wobble after big runs. (We’re still OK taking partial profits on the way up, of course.) If you have a tiger by the tail, be sure to give most of your shares some room to breathe, as the odds favor most will see higher prices down the road.
Back to the overall market, the good news is that the past week has brought another couple more encouraging signals to go along with the 2-to-1 Blastoff Indicator from early January. We saw more than 90% of the S&P 500 stocks close above their 50-day line (combined with the S&P having had a recent downturn, that’s a solid sign for the months ahead), and then on Wednesday, more than 90% of all NYSE stocks closed above their 50-day line, which in and of itself has led to healthy gains over the next six to nine months.
Just as important, there’s a chance our longer-term trend model (which we call Cabot Trend Lines) could turn positive at today’s close if the S&P and Nasdaq finish higher on the day. The Trend Lines aren’t an exact timing signal, per se, but similar to the blastoff indicators above, they paint a picture of a market that’s likely heading higher over time.
All told, we remain bullish and will likely leave our Market Monitor at a level 8 next week. In the near-term, be sure to take things on a stock-by-stock basis and look for reasonable pullbacks in leaders to take new positions.
BUY IDEAS
Alarm.com (ALRM 64) has earnings due out next Thursday (February 28), so buying is a risk, but we really like the action—shares had a big-volume, persistent advance for the month of January and have shown no desire to retreat since, even tightening up in recent days. If you’re game, you could nibble here or on dips, use a loss limit near 58 and see what earnings brings.
Alteryx (AYX 73) is a similar story to ALRM—it will report earnings next Wednesday (February 27), and we like the setup heading into the report. After good resilience late last year and a move to new highs in early January, the stock has tightened up during the past month. If you’re aggressive, you could nibble here and buy more if the earnings reaction is bullish.
Coupa Software (COUP 93) definitely looks like one of the top glamour stocks in the market, and like many strong names it’s begun to pull back a bit. It’s still extended and has earnings coming out (March 12), but a dip to 90 or below would be very tempting, with a relatively loose initial loss limit of around 10 points.
We continue to like the look of Entegris (ENTG 36), which is benefiting from a strong chip group and its game-changing merger. The stock moved out of a tight area on big volume this week—we think you can buy here or on dips of a point or so, with a stop near 31.5 or 32.
SELL IDEAS
We’re going to pull the plug on Azul (AZUL 30) and Spirit Airlines (SAVE 60) today—SAVE seemed like a good setup a couple of weeks ago, but after some sloppy action it’s appearing more toppy than anything. We could get back onboard if the chart shapes up, but it looks like the sellers are taking control.
With either AZUL or SAVE, feel free to trail a stop and see how it goes. But we’ll sell them and focus on stronger names.
SUGGESTED STOPS
Alteryx (AYX 73) near 65
Atlassian (TEAM 104) near 94
Bilibili (BILI 19) near 16.5
Dexcom (DXCM 139) near 137 (could be tripped today – keep an eye on it)
Etsy (ETSY 55) near 51.5
Pinduoduo (PDD 29) near 26
ServiceNow (NOW 234) near 207
Tencent Music (TME 17) near 14.6