It’s shaping up to be a week of little change in the major indexes, but that doesn’t tell the tale—there was plenty of volatility all week (and even intraday) as earnings season and major news items (Fed, jobs, other economic data) hit the tape.
Not surprisingly, all of those drivers led to a scattered market environment—there wasn’t any real theme that emerged, as major indexes, sectors and leading stocks all danced to their own tune.
Bigger picture, not much has changed, either from a positive or negative standpoint—the intermediate- and longer-term trends of the major indexes and the vast majority of leading stocks remain up, though we’re still seeing small-cap indexes lag and relatively few stocks hit new 52-week highs.
The one thing that we have picked up on is the numerous poor earnings reactions from growth stocks. To be fair, we haven’t seen a ton of outright breakdowns, but we’re mostly seeing stocks that have had good runs in recent months (and recent weeks) get hit no matter what the numbers and outlook are. And even those that have modest positive reactions have tended to see those erased within a couple of days.
This isn’t a reason to panic, but for us it’s a sign to keep our eyes open. Obviously, the market and many stocks have come a long way, so the question is whether these reactions lead to a sustained round of profit taking (cracking their intermediate-term uptrends) or simply one- or two-day shakeouts after good runs. We’ll be watching.
Thankfully, though, we don’t make big moves in or out of stocks based on ifs and maybes, but on the evidence—and right now, most of the evidence is positive, so we remain mostly bullish. That said, the flies in the ointment are a reason to keep your feet on the ground, look for advantageous buy points and to consider booking some partial profits when you have them.
BUY IDEAS
It hasn’t done anything since our initial recommendation a month ago, but we continue to like the look of Survey Monkey (SVMK 18), which has etched a tight range since the start of April after a big rally the past few weeks. The trick is that earnings are due out next Wednesday (May 8)—if you feel like rolling the dice, you could nibble here and see what comes. Or just watch it, as a powerful breakout above 18.5 after earnings would look buyable.
Universal Display (OLED 181) is exploding higher on earnings today, and while this move comes after a good run in recent months, it also comes on the heels of a sharp dip to its 50-day line—the first test of that key trend line since getting going. Earnings winners have tended to pull back this earnings season, so nibbling on dips of a few points should work.
This is a risky potential buy, but we thought we’d bring this up for those interested—Yeti (YETI 31) got hit hard on earnings yesterday, but this comes after a big run and, this morning, the stock found support at its 50-day line, its first test of the 50-day line during its run. Initial tests tend to bring in buyers, so if you want to roll the dice, you could consider picking up some shares here, but with a reasonably tight stop around 29.
Zendesk (ZEN 87) has formed what looks like an ascending base since the start of March, with three higher lows and three higher highs during that time, including a shakeout to its 50-day line on earnings this week. We’re OK starting a position here with a stop near 78.5, and possibly adding some more if the stock rallies above 88-89 going forward.
SELL IDEAS
As written above, it’s probably a good idea to book partial profits if you have a good-sized winner that’s racing higher. Today’s example is Shopify (SHOP 262), which has gone vertical after earnings, but this comes after a multi-month advance. Long term, the action is bullish, but near term we think it’s best to sell some and hold the rest.
As for outright sells, we’re pulling the plug on three names today: Ionis Pharmaceuticals (IONS 73), Redfin (RDFN 20) and SS&C Tech (SSNC 60).
SUGGESTED STOPS
Acacia Comm (ACIA 58) near 56
Amphenol (APH 100) near 97
Avalara (AVLR 59) near 52
Bootbarn (BOOT 31) near 27.9
Cabot Microelectronics (CCMP 124) near 116
Delta Air (DAL 58) near 55
Epam Systems (EPAM 177) near 164.5
Entegris (ENTG 41) near 37.5
LendingTree (TREE 386) near 342
Lennox (LII 270) near 254
Match.com (MTCH 62) near 57
MercadoLibre (MELI 568) near 490
Paycom Software (PAYC 206) near 186
Paylocity (PCTY 99) near 88
Planet Fitness (PLNT 74) near 66
ProPetro (PUMP 22) near 21
Rio Tinto (RIO 59) near 57
Sea Ltd. (SE 24) near 23
ServiceNow (NOW 266) near 240
Starbucks (SBUX 78) near 72.5
Trade Desk (TTD 230) near 195
Ulta Beauty (ULTA 344) near 329
Veeva Systems (VEEV 143) near 126
Woodward (WWD 110) near 100
Workday (WDAY 202) near 184
Yext (YEXT 22) near 20.3
Zendesk (ZEN 87) near 78.5
Zscaler (ZS 66) near 59