The weeklong tariff threats and (this morning) levies have caused a consistent wave of selling this week, which, as we write, has brought most major indexes down to (or a bit below) their 50-day moving averages.
While everyone is trying to game out (or guess) what comes next, it’s usually better to just stick to what you see—i.e., go with your system and the action of the market, not gut feels or rumors.
When we do look at the market, we see a longer-term uptrend and many reasons to expect this bull market to continue (trend, blastoff indicators and some recent studies that confirm the likelihood of higher prices 9-12 months down the road).
But we also see an intermediate-term uptrend that’s now on the fence and, even before this week, saw some weakening evidence (loss of momentum, a ton of poor earnings reactions and signs of investor complacency).
While we’d all love to see an immediate snapback (and we’re not ruling it out), we’d respect what’s going on and be a bit cautious here. On the sell side, we’d honor your stops, and otherwise, would focus on positions that are either huge (you could pare back), are showing you a decent loss (don’t let the loss get out of hand) or are lagging (if something hasn’t made much progress in two or three months, you have to wonder what will happen if the market has a “real” correction). We have a good number of sells this week as many names broke support.
On the buy side, the good news is that many growth-oriented stocks have actually held up pretty well this week. We’re not saying they can’t eventually crack if the market does, but so far, there’s clearly not across-the-board selling, which is a plus.
Even so, until we see some real strength, we’d favor either keeping new positions small, or being very selective and using tight stops.
Back to the market, we’re willing to go either way from here. After four months of nearly straight-up action, it wouldn’t be surprising if the market needed a few weeks to “shake the tree.” That said, a strong snapback after a big dip on well-known news wouldn’t be unusual, either.
In other words, be sure to stay flexible and follow the evidence. Right now that means trimming when necessary and being very discerning on the buy side.
BUY IDEAS
Lennox (LII 270) has built a nice looking month-long shelf in the 260 to 280 range and it barely hiccupped this week. With the 50-day line approaching quick (262 and rising), we’re OK taking a stab at the stock here with a stop near 256. Or, alternatively, you could wait for a breakout attempt above 280 or so.
Match.com (MTCH 66) had basically been consolidating (with a couple of minor new highs) since early February when earnings this week catapulted the stock to new highs, and it’s held those gains since. A small position on dips toward 65 would be intriguing, with a stop in the upper 50s.
Zscaler (ZS 70) has shown excellent relative strength lately, and overall, it just broke out in February and has been generally holding its 50-day line. It’s up near its highs today, so we wouldn’t chase it in a tough market environment, but dips back toward the 50-day line (66 or so) would be interesting, using a stop near 60.
SELL IDEAS
If you bought Sinclair Broadcast (SBGI 61) with us a couple of weeks ago, it makes sense to book some partial profits if you haven’t done so yet. It looks great and is holding well, but taking some off and holding the rest is advised.
Meanwhile, the following are outright sells. If you want to give any of these stocks a little extra wiggle room, that’s fine, but most have either tripped our stops, loss limits or otherwise broken down on earnings:
Acacia Communications (ACIA 55)
Amphenol (APH 92)
Cabot Microelectronics (CCMP 112)
Ctrip (CTRP 40)
Epam Systems (EPAM 169)
Fastenal (FAST 65)
GDS Holdings (GDS 36)
Invitae (NVTA 19)
Microchip Tech (MCHP 88)
ProPetro (PUMP 21)
Trade Desk (TTD 187)
Wynn Resorts (WYNN 128)
Yeti (YETI 29)
Yext (YEXT 21)
SUGGESTED STOPS
Advanced Micro (AMD 27) near 25.5
Autohome (ATHM 106) near 102
Avalara (AVLR 71) near 56
Bootbarn (BOOT 29) near 27.9
Broadcom (AVGO 299) near 295
CoStar Group (CSGP 491) near 475
Delta Air (DAL 55) near 55
DR Horton (DHI 43) near 42
Entegris (ENTG 39) near 37.5
Huazhu Group (HTHT 37) near 36.5
LendingTree (TREE 387) near 348
Lennox (LII 270) near 256
Match.com (MTCH 66) near 58.5
MercadoLibre (MELI 545) near 493
Nexstar Media (NXST 109) near 105
Paycom Software (PAYC 205) near 190
Paylocity (PCTY 96) near 89
Planet Fitness (PLNT 77) near 66.5
Rio Tinto (RIO 58) near 57
Sea Ltd. (SE 25) near 23
ServiceNow (NOW 269) near 242
Starbucks (SBUX 77) near 73
Survey Monkey (SVMK 17) near 16.4
Ulta Beauty (ULTA 338) near 330
Universal Display (OLED 163) near 150
Veeva Systems (VEEV 141) near 127.5
Woodward (WWD 108) near 101.5
Workday (WDAY 198) near 189
Zendesk (ZEN 86) near 80
Zscaler (ZS 70) near 61