It’s been a modestly positive week, with most major indexes and leading stocks posting gains. As we write this Friday morning, the S&P 500 and Nasdaq are up less than a percent on the week, but both have hit new all-time highs this week.
Overall, we remain very optimistic this bull market has farther to run when looking out a few months. Yes, there are imperfections (small- and mid-cap indexes are lagging, as are some well-followed groups like transports), but the majority of the evidence points higher, such as the bullish intermediate- and longer-term trend and mundane sentiment among investors.
Even better, our own 7.5% Rule flashed a buy signal last Friday. That occurs when the S&P 500 closes a week at least 7.5% above its 35-week moving average for the first time in at least nine months. (We also require a close below that 35-week line since the last signal; basically, we’re looking for a surge of buying after a long period of consolidation or a deep correction.)
The 7.5% Rule is part of our stable of blastoff indicators, with a sterling record going back nearly 40 years. Since 1980, there have been just 11 prior signals, and the S&P 500 rises as much as 10.4% on average six months later and as much as 21% a year later. Just as impressive, the average maximum loss from the signals has historically been tame (just 2.1%).
Interestingly, though, in the short-term, these 7.5% signals are more of a tossup (average one-month gain is just 0.3%). And that plays along with some other things that suggest the near-term could see some hesitation—the major indexes have had a good run in the past few weeks, earnings season is right around the corner and a ton of stocks are extended to the upside.
Long story short, it’s still important to pick your stocks and your entry points carefully, and to have a plan to deal with earnings season. But it’s also important to stay constructive given the market’s bigger-picture bullish outlook. We’ll likely nudge our Market Monitor back to an 8 in Monday’s issue.
BUY IDEAS
Exact Sciences (EXAS) finally got up and going in recent weeks, pushing as high as 120 earlier this week. Yesterday’s pullback to the 25-day line looks buyable to us; use a stop near 104 if you enter. New positions should be kept small given that earnings are due out July 25.
Gold stocks are always fidgety, but the pauses in most of them look fairly tight compared to their strong June advances. Kirkland Lake (KL) has rested for the past couple of weeks, with the 25-day line (now near 41) catching up. We’re OK starting a position here, albeit with a relatively loose stop around 37.5.
SolarEdge (SEDG) has had a bigger run but otherwise looks similar to EXAS—a strong advance followed by some hesitation and a little shakeout on Thursday toward its 25-day line. If you don’t own any, we’re OK starting a position here or on dips below 60, with a stop just under the 50-day line near 56.
Tempur Sealy (TPX) isn’t going to wow anyone with its story, but the price/volume action is as good as it gets, with huge waves of accumulation over the past few weeks after inking some new distribution pacts in mid June. Dips into the 73 area would be tempting, with a relatively tight stop around 67.
SELL IDEAS
First off, with so many stocks having enjoyed good runs in the past month, don’t forget to book some partial profits here or there. It could be something that you’ve owned for a few weeks that’s up sharply (PagSeguro (PAGS) is up 20%-plus from its early-June recommendation) or a newer recommendation (Inphi (IPHI) is up 12% this week alone). Don’t go out and sell all your best stocks, but taking a little profit off the table in a couple of names makes sense.
As for outright sells, nothing has tripped its stop, but there are many stocks that are extended—if you want to instead simply trail a stop, that’s fine, but we’re going to go ahead and book our profits in CoStar Group (CSGP) and VeriSign (VRSN), both of which have had good runs.
SUGGESTED STOPS
Advanced Micro (AMD) near 29.5
Armstrong World (AWI) near 90
Avalara (AVLR) near 70
Boot Barn (BOOT) near 31
Chipotle Mexican Grill (CMG) near 640
Ciena (CIEN) near 41
Disney (DIS) near 132
First Solar (FSLR) near 61
Heico (HEI) near 119
Innovative Industrial Properties (IIPR) near 110**
Legg Mason (LM) near 36
LendingTree (TREE) near 384
Match.com (MTCH) near 67
MercadoLibre (MELI) near 560
MongoDB (MDB) near 148
Paycom Software (PAYC) near 215
PayPal (PYPL) near 111
Penumbra (PEN) near 155
Planet Fitness (PLNT) near 70
Pulte Homes (PHM) near 31
Sea Ltd. (SE) near 29.5
ServiceNow (NOW) near 271
Shopify (SHOP) near 270
Trade Desk (TTD) near 218
Under Armour (UAA) near 24.5
Veeva Systems (VEEV) near 153
Wix.com (WIX) near 136
Woodward (WWD) near 107.5
Zscaler (ZS) near 71
**We goofed by including IIPR in our Hold section a couple of weeks back (misread the chart by a day), as the stock didn’t trade within our buy range. However, we’ve heard from many subscribers that they did take a position—thus, we’ll continue to provide advice on it for those that own it.