The major indexes have had a solid week thus far, with most major indexes up 1.5% to 2.5% after this morning’s modest jobs report bounce.
Bigger picture, we continue to like what we see in the market. The intermediate-term trend, which was a bit iffy last week, is once again pointed up. Plus, the longer-term trend remains positive, most stocks are in uptrends and sentiment remains far from hot (another $4 billion of money came out of equity funds and ETFs this past week).
Throw in the blastoff indicators from earlier this year and we continue to think the odds favor meaningfully higher prices in the months down the road.
All that said, we do see a couple of yellow flags, the first of which is that the rally has (to this point) been thinning out—on each of the past two pushes to new recovery highs by the Nasdaq, for instance, the number of stocks hitting new 52-week highs has backed off. To be fair, the recent action in small- and mid-cap indexes (which had been lagging) is encouraging, but the evidence still points to a bit less participation on each push higher.
Second, a good-sized crop of leading stocks (mostly technology-related—cloud, software, cybersecurity, etc.) has come under distribution, with many dipping to key support (50-day lines, etc.) yesterday. These names are near an intermediate-term moment of truth—the selloffs could be a result of temporary start-of-quarter repositioning, and strong rebounds in the days ahead would play to that theme. But decisive breakdowns from here would increase the odds of multi-week base-building efforts for these names, and could see the selling spread to other corners of the market.
So where does this leave us? Overall, we’re still bullish, but it’s really about taking things on a stock-by-stock basis. Many (most?) names look just fine, and while we never argue against booking some partial profits, we advise mostly sitting tight with your strong, profitable positions.
However, if you have some losers and laggards (which is likely given how many leading stocks have stalled out and taken hits), you should use some relatively tight mental stops, keep losses small and hold some cash if you do get knocked out of some names.
Thus, the next few days will be key to the short-term (and maybe intermediate-term) future—stay flexible as we see how the market’s latest rotation plays out.
BUY IDEAS
Acacia Communications (ACIA 59) is performing exactly how you’d want it to if it’s near the start of a sustained upmove—a strong gap out of a big base in February, a volatile rest period for a month, and now pushing to new highs (and not giving up any ground despite the growth stock wobble). We’re OK buying a small position here or (preferably) on dips toward 57, using a stop around 52.
Veeva Systems (VEEV 130) is one of the few cloud software stocks that hit a new high in recent days, and not surprisingly, it’s also avoided any big selloff during the past day or two. We would still aim for dips, possibly down to 126 or 127, using a stop around 117.5.
It’s not the most exciting name, but Woodward (WWD 97) staged a huge breakout in late January and followed through nicely to 97 by late February. Since then, like much of the broad market, it’s consolidated, but is near the top of a six-week base. If you want in, you could start a position around here with the idea of buying more on a decisive push above 100. Earnings are likely out near the end of the month.
SELL IDEAS
We have three outright sells today: Mirati Therapeutics (MRTX 73), Q2 Holdings (QTWO 66) and Smartsheet (SMAR 39). Probably more important, we’ve added a bunch of stops to the list below in case the recent selling pressure in some corners of the market persists.
SUGGESTED STOPS
Amarin Corp. (AMRN 20) near 17.5
Array Biopharma (ARRY 24) near 21.9
Atlassian (TEAM 112) near 103.5
Avalara (AVLR 55) near 50
Bootbarn (BOOT 32) near 27.5
Chart Industries (GTLS 89) near 84.5
DocuSign (DOCU 54) near 50
Entegris (ENTG 38) near 34.5
Etsy (ETSY 69) near 63
Everbridge (EVBG 73) near 68
ForeScout (FSCT 41) near 38.5
Incyte Corp. (INCY 84) near 80.5
iRobot (IRBT 123) near 114
LendingTree (TREE 365) near 320
Match.com (MTCH 55) near 53.5
Netflix (NFLX 366) near 343
Omnicell (OMCL 81) near 77
Paycom Software (PAYC 185) near 173
Planet Fitness (PLNT 71) near 61.5
RingCentral (RNG 107) near 101
ServiceNow (NOW 238) near 223
Tencent Music (TME 19) near 16.9
Trade Desk (TTD 196) near 178
Veeva Systems (VEEV 130) near 117.5
Workday (WDAY 187) near 175