We remain bullish, as the intermediate- and longer-term trends continue to point up and the broad market has shown few signs of intense selling pressure. The fact that the Nasdaq continues to lead on the upside, we’re seeing a good number of growth-oriented sectors act well, and most indexes haven’t given back any of their post-election gains are all to the good.
That said, we’d love to see more indexes show some upside power. The S&P 600 SmallCap and S&P 400 MidCap are both basically flat to slightly up (1%) during the past eight weeks. The S&P 500 is a bit better than that, but not much. That’s a big reason why, despite some big-cap indexes stretching to new highs recently, the number of stocks hitting new highs is way down from two months ago.
Don’t get us wrong, we’re not saying this action is bearish or a major red flag. (Even the “worst” index is still just a stone’s throw from new highs!) But, in this environment, strong stocks have tended to rally for a week or two and then pull back and consolidate as most indexes chop around.
All of this is a way of saying that it’s best to be selective on the buy side, looking for stocks that have shown extreme power and/or have pulled back calmly for a week or two to decent entry points. And on the sell side, tightening stops on any losers and laggards makes sense.
The good news is that we are seeing more and more stocks from a variety of sectors either set up or resume their advances. And should we see some upside confirmation from the major indexes, these and other stocks should enjoy healthy runs.
All told, we remain mostly bullish—our Market Monitor is currently at a level 7 (out of 10), and we could push it a notch higher depending on how things go today and Monday. Thus, you should be heavily invested. But we’ll wait for some decisive strength to floor the accelerator.
BUY IDEAS
Alcoa (AA 38) enjoyed a nice breakout and follow-through from its IPO base last month, and has now pulled back and consolidated for three weeks. You could nibble here or, preferably, buy some on dips toward 36, using a stop around 33.
CF Industries (CF 35) has pulled back nicely and calmly during the past couple of weeks and is now testing its 25-day line. We like that, right before this dip, CF lifted to multi-month highs on three straight days of big volume. We think CF is buyable around here with a stop near 32. If you want to be safer, you could wait for a push above 36 or so before buying (and use a stop near 33).
Dave & Buster’s (PLAY 57) has been out of favor for a few weeks along with most retailers and restaurant stocks, but it’s shown life this week, surging back to its old highs in just three days. We’re not opposed to a small buy here with a stop near 53.5. Or, you could wait for a decisive push above 58.5 before buying. Earnings are likely out in early March.
Incyte Corp. (INCY 122) found great-volume support at its 25-day line this week and has been generally consolidating since late January. Biotech stocks aren’t very strong, but they have stabilized and begun to tighten up. If you don’t own any, you could buy INCY around here with a stop around 112.
SELL IDEAS
We have six sells today, all of which tripped their stops during the week (some on intraday shakeouts): Halliburton (HAL 57), HealthEquity (HQY 43), MRC Global (MRC 21), Oshkosh (OSK 68), Patterson-UTI Energy (PTEN 28) and PDC Energy (PDCE 74).
You can also consider taking some partial profits in a couple of strong names if you haven’t done so—Coherent (COHR 198), Take-Two Interactive (TTWO 58) and Tesaro (TSRO 182) are three examples where you can have your cake (book some profits) and eat it, too (hold onto some shares for what hopefully morphs into a larger, longer-term move).
SUGGESTED STOPS
Adient (ADNT 61) near 59
Applied Materials (AMAT 35) near 33
Berry Plastics (BERY 49) near 48.5
Cavium (CAVM 66) near 63
Charles Schwab (SCHW 40) near 37.5
Dave & Buster’s (PLAY 57) near 53.5
DeVry (DV 32) near 31.5
Eagle Materials (EXP 106) near 99.5
Freeport-McMoRan (FCX 16) near 14.9
Grand Canyon Education (LOPE 58) near 56.5
Greenbrier (GBX 45) near 42.5
HD Supply (HDS 44) near 41.5
Hancock Holding (HBHC 46) near 43
MGM Resorts (MGM 29) near 28
Nvidia (NVDA 115) near 103
Quanta Services (PWR 37) near 34.5
SVB Financial (SIVB 177) near 165
Signature Bank (SBNY 157) near 152
Square (SQ 15) near 13.6
Take-Two Interactive (TTWO 58) near 52
Tesaro (TSRO 182) near 157
Texas Capital Bancshares (TCBI 85) near 78.5
Thor Industries (THO 109) near 101
Univar (UNVR 29) near 27.5
U.S. Silica (SLCA 59) near 54
WellCare Health (WCG 142) near 140
Western Alliance Bancorp (WAL 50) near 47.5
Western Digital (WDC 77) near 71.5
XPO Logistics (XPO 46) near 42