It’s been a relatively quiet week for the major indexes despite some bad news (Iran, big warning from Broadcom today), which we take as a constructive sign following the strong push higher after last Monday’s market low. As we write this, the S&P is up 0.6% and the Nasdaq is up 0.5% on the week.
Our intermediate-term trend model has yet to turn positive—it’s relatively close, but without getting into the weeds, we’d probably need to see the Nasdaq lift a couple of percentage points from here for it to happen. There are also a couple of yellow flags we’re keeping an eye on, one being continued lagging action from small-cap indexes (though we’ve seen a little improvement on that front over the past couple of days) and the strength in defensive (consumer staples) stocks.
However, we remain cautiously optimistic that the next major move is up. Part of that is due to all the stuff we’ve written about in recent weeks—dour sentiment a week ago, a “normal” downturn compared to other post-blastoff environments and strong action from leading stocks, especially once the pressure came off the general market early last week. The lack of selling after the recent bounce is also a plus.
Put it all together and we’re going to stick with our current stance: Holding your strong stocks (though, as always, partial profits here and there are fine) and doing some selective buying is fine, but we’d also suggest keeping some cash on the sideline and waiting for further upside confirmation from the market and leading stocks before getting more bullish. We’re likely to keep our Market Monitor at a level 7 in next Monday’s issue.
From here, the plan is pretty simple: If the market follows through on the upside, we’ll extend our line, but should the sellers reappear, we’ll take things on a stock-by-stock basis, cutting if need be. Despite the recent rally, there’s still a chance the market needs more time and/or another leg down (retest of the low, etc.), and of course there are still a ton of uncertainties out there (with the Iran tensions providing another something to worry about).
Still, we wouldn’t be trading on hopes or worries, but on the evidence. Right now, there’s more good than bad out there, but it’s best to go slow and hold some cash until the recent rally proves it’s the real McCoy.
BUY IDEAS
Blackstone (BX 44), which was our Top Pick back on May 20, had a big shakeout near the end of May but has boomed higher since, easily moving to new highs on excellent volume. It’s not a pristine entry point, but you could nibble here or, even better, aim to get a position on dips of a point or two with a stop near 39.5.
While Tandem Diabetes (TNDM 64) looks ragged (it’s a sell this week—see below), peer Insulet (PODD 117) looks great, grinding higher for all of May and actually popping to new highs this week. It’s a bit thin and choppy, but if you want in, dips below 115 would be attractive, with a stop around 102.
Zscaler (ZS 78) is still early in its overall run (just broke out in late February) and has now etched an 11-week base-on-base launching pad, with support appearing near its 50-day line a couple of times and some excellent buying volume seen on Thursday. It’s very volatile, but we’re OK starting a position here or on dips of a point or two, using a loose stop under 70, and considering buying more on a decisive move above 81 or so.
SELL IDEAS
We have four sells today, though if today’s decline worsens, we could always add to the tally come Monday’s issue. For now, DMC Global (BOOM 62), Pilgrim’s Pride (PPC 26), Tandem Diabetes (TNDM 64) and Viasat (VSAT 88) are all sells.
SUGGESTED STOPS
Advanced Micro (AMD 30) near 28
Ascendis Pharma (ASND 122) near 117
Avalara (AVLR 67) near 62
Chipotle Mexican Grill (CMG 734) near 635
CoStar Group (CSGP 550) near 505
First Solar (FSLR 61) near 58
GW Pharmaceuticals (GWPH 174) near 167
Harris (HRS 191) near 179
Heico (HEI 126) near 114
LendingTree (TREE 382) near 360
Lennox (LII 274) near 267
Match.com (MTCH 72) near 64
MercadoLibre (MELI 618) near 535
Ollie’s Bargain Outlet (OLLI 94) near 91
Paycom Software (PAYC 217) near 199
PayPal (PYPL 116) near 107.5
Planet Fitness (PLNT 80) near 70
Pulte Homes (PHM 33) near 30
RingCentral (RNG 117) near 109
Sea Ltd. (SE 30) near 26.5
ServiceNow (NOW 275) near 252
Starbucks (SBUX 84) near 79
TopBuild (BLD 81) near 76
Veeva Systems (VEEV 166) near 142
VeriSign (VRSN 206) near 192.5
Woodward (WWD 113) near 104.5
Zoom Communications (ZM 103) near 84
Zscaler (ZS 78) near 68.5