If you could draw up a reaction to the selling of the past couple of weeks, the past few days would have been it, with the market basically levitating higher all week, including this morning’s pop. As we write, the S&P 500 is up 2.6% on the week, while the Nasdaq is up 3.5%.
Obviously, the rebound this week is all to the good, but we don’t have a strong opinion of the market’s short-term future. A further move higher is certainly possible, as the underpinnings of the market remain strong—the intermediate- and (by our measures) longer-term trends are pointed up, almost no leading stocks have cracked (and many have popped to new highs) and we remain impressed with the general skepticism seen in many sentiment measures.
That said, there are a lot of very short-term “non-confirmations” out there—while the S&P 500 and Nasdaq have nosed to new recovery highs, other major indexes (small caps, mid caps, NYSE Composite) have not, nor have the number of stocks hitting new highs. Plus, let’s not forget that we only dipped for a few days after a strong nine-plus week advance, so further hesitation wouldn’t be uncalled for.
All of that is simply a way of saying that the path of the next couple of weeks is a bit of a coin flip. Further strength wouldn’t be surprising, but we wouldn’t bet against another wobble or two like we saw earlier this month (or possibly some rotation out of hot growth stocks and into other areas, which we’re seeing this morning). Given it all, it’s probably good to remain a bit choosy on the buy side, buying mostly on dips or after a brief rest period.
But we don’t want to make too much of the short term. The big story here remains the fact that the market is likely relatively early in a new bull move that, if history is any guide, should last for many more months.
Indeed, this week’s rebound only reinforces our bullish view—the longer the market goes without a major headache, the better the odds that this thrust off the lows (which is approaching three months) will lead to meaningfully higher prices down the road.
All in all, the evidence remains bullish, so you should as well. At this point, we don’t advise jumping into things that have just had big runs (conversely, you can continue to take partial profits on some stocks that are sticking straight up in the air), but you should be holding most of your shares in strong performers and looking to add new leaders, preferably on pullbacks.
BUY IDEAS
Exact Sciences (EXAS 96) has suffered two short, sharp shakeouts during the past month (one 10%, the other 15%!). But both found key support, and now the stock is racing back toward its highs. Generally speaking, this action likely knocked out the remaining weak hands; expect volatility, but we’re OK buying some here or on dips of two or three points, with a stop in the 83 area.
We just featured Invitae (NVTA 24) three weeks ago, but it’s acting like a potential winner—after a strong-volume move to new highs in February, the stock barely hesitated during the market’s recent wobbles before marching nicely higher on another round of big-volume buying this week. It’s extended and a bit thinly trade, so aim for dips of a point or more, and use a loose stop around 18 if you buy here.
iRobot (IRBT 125) hasn’t bounced that well this week, but we like the overall pattern, with a massive blastoff and follow-through in February and a reasonable rest here as the 25-day line (now at 121) catches up. If you don’t own any, you could nibble here or (preferably) on weakness into the lower 120s, with a stop around 109.
Zendesk (ZEN 82) broke out on earnings in early February, meandered for a bit, then had a quick shakeout to its 25-day line earlier this month. But the action this week has been very encouraging, with a few good volume days pushing the stock to new highs. You could nibble here, but again, we’re more interested in trying to grab shares on modest weakness (possibly back toward 80), with a stop around 73.
SELL IDEAS
As we often write, don’t forget to ring the register with some names on the way up, selling a portion (maybe one-third) of your shares, which will both give you some profits (obviously) but also help you hold the rest of your shares for a bigger gain. Guardant Health (GH 99) and Smartsheet (SMAR 45) are two examples of stocks that, if you haven’t yet, you could take a few chips off the table.
As for outright sells, we have four today, mostly due to stop violations: Elastic (ESTC 84), iRhythm Tech (IRTC 89), LGI Homes (LGIH 57) and Pinduoduo (PDD 25).
SUGGESTED STOPS
Atlassian (TEAM 110) near 99
Bootbarn (BOOT 27) near 24.9
Dine Brands (DIN 89) near 87.5
Entegris (ENTG 36) near 33
Etsy (ETSY 71) near 61.5
Incyte Corp. (INCY 85) near 78
LendingTree (TREE 338) near 291
LPL Financial (LPLA 74) near 70.5
Match.com (MTCH 54) near 51
Mirati Therapeutics (MRTX 76) near 63.5
Netflix (NFLX 362) near 335
Planet Fitness (PLNT 67) near 59.5
ServiceNow (NOW 241) near 213
Spirit Aerosystems (SPR 91) near 87.5
Tencent Music (TME 18) near 15.7
Veeva Systems (VEEV 123) near 110