It’s been a volatile week for the market, with some churning seen earlier in the week, a huge up day after the Fed’s dovish stance, and then today’s big wave of selling on economic fears and a newly-inverted yield curve (as of this morning).
We remain bullish when looking down the road because most of the big-picture evidence is pointed up, including the longer-term trend, the blastoff indicators from earlier this year and the action of leading stocks, which, despite today’s wobbles, are almost all still in intermediate-term uptrends.
That said, in the short term, we have our antennae up for a couple of reasons. First, the broad market isn’t participating—even as the S&P and Nasdaq have hit new highs during the past two weeks, small- and mid-cap indexes are now going on a month without doing the same. In fact, these indexes are actually meandering just above their 50-day lines, a key intermediate-term demarcation level.
Moreover, we’re not finding many great entry points, as most leading stocks are generally extended to the upside and have been running for many weeks, leaving them vulnerable to some profit taking. We’ve also seen some stocks attempt to emerge from consolidations this week, only to be met with immediate selling pressure.
Thus, we think it’s fair to say a few yellow flags are popping up. That’s not a reason to bail out, but we’re still favoring buying shares on weakness, and on the sell side, be sure to honor your stops and consider booking some partial profits in extended names, while holding your remaining position for a potential bigger move.
Don’t get us wrong—we’re bullish overall, and the odds continue to favor the market (and many top stocks) being higher in the months down the road. But in case we get some upcoming rockiness, be sure to follow your plan and keep your feet on the ground.
BUY IDEAS
Networking stocks have been a bit mixed lately, but Acacia Comm. (ACIA 57) looks great, with its huge late-February earnings-induced breakout leading to a calm pullback for two weeks followed by a good-volume push to higher highs this week. You could nibble here (with a stop near 52), or preferably buy back toward 55 (with a stop in the 49.5 area).
Match.com (MTCH 58) was looking worse for wear a couple of weeks ago, but it found support at its 50-day line and has bounced nicely this week. It still has some resistance to chew through near 60, but we’re OK starting with a small position here or (preferably) on dips of a point or two. Use a stop near 52.5, and consider adding shares on the upside if MTCH can get above 60 in the days ahead.
MercadoLibre (MELI 497) continues to act very well, probably because it’s very early stage (just came out of a huge base in late February) and has lots of volume support beneath it (the spike two weeks ago came on enormous turnover). If you don’t own any, look for dips toward 475, using a stop around 425 if that occurs.
Veeva Systems (VEEV 124) had a beautiful upmove to 122 in February, pulled back to 110 and has since had another nice upmove (up 11 days in a row) to new highs at 128 yesterday. We think pullbacks into the 120 area would be tempting, especially if they happen over a few days and on light volume, using a stop around 113.
SELL IDEAS
Our only official sell right now is LPL Financial (LPLA 69), which is one of many financial stocks to have caved in this week. That said, we’ve raised and added a bunch more stops below, and depending on how today closes and Monday’s action, we could be pruning a few more.
SUGGESTED STOPS
Array Biopharma (ARRY 23) near 21
Atlassian (TEAM 111) near 101.5
Bootbarn (BOOT 27) near 25.5
Chart Industries (GTLS 90) near 84
Chegg (CHGG 38) near 36.5
Ciena (CIEN 37) near 36.9
Coupa Software (COUP 91) near 89
Cronos (CRON 19) near 18.5
Entegris (ENTG 35) near 33.5
Etsy (ETSY 66) near 62
Incyte Corp. (INCY 86) near 79.5
Kirkland Lake (KL 34) near 31.5
LendingTree (TREE 332) near 297
Match.com (MTCH 58) near 52.5
Mirati Therapeutics (MRTX 74) near 65
Netflix (NFLX 366) near 340
Planet Fitness (PLNT 67) near 60
ServiceNow (NOW 244) near 218
Spirit Aerosystems (SPR 90) near 88.5
Tencent Music (TME 17) near 16.1
Veeva Systems (VEEV 124) near 113