First off, all of us at Cabot hope you have a great long Labor Day weekend—enjoy some BBQ and beers for us. Your next issue of Cabot Top Ten Trader will be sent Tuesday after the close, as our offices will be closed on Monday. Enjoy!
As for the market, it’s been an interesting week and a crazy month. After last Friday’s plunge, stocks have bounced back strongly, with the S&P 500 and Nasdaq both up more than 3%.
Shorter term, we are seeing some encouraging things. For instance, we saw three legs down of a sort on the Nasdaq (it’s seen three separate 3%-plus plunges in August), with the one last Friday revealing a minor positive divergence in the number of stocks hitting new lows. And on Wednesday/Thursday, we saw back-to-back days where 80% of NYSE volume flowed into rising stocks—a relatively positive intermediate-term sign.
That said, looking at the charts, we can’t decisively conclude the intermediate-term trend is up quite yet—the major indexes are at (S&P 500, Nasdaq) or still below (the rest) their 50-day lines, with most basically still within their August trading ranges.
Moreover, the past few days have seen some strong rotation—most of the action has been in the beaten-down areas like transports, energy and financials. For instance, we saw just 53 stocks hitting new highs on the Nasdaq yesterday, with many leading stocks actually losing ground. That’s not a bad thing, per se, but it plays into the theme that we’re still seeing a ton of crosscurrents and news-driven action at this point, which is less reliable.
Overall, we still need to see more from the market and leading stocks before getting outright bullish. For now, you should still play things somewhat cautiously—some new buying is fine, but pick your spots and start small, and holding some cash isn’t the worst idea, either. On the flip side, we’d continue to sit with most of your strong, profitable holdings, giving them a chance to continue higher down the road.
Looking ahead, the game plan is simple—if the strength in the market continues and if some leaders get going, we’ll get more constructive. If the sellers reappear next week, though, we’ll stick with a cautious stance.
BUY IDEAS
We just wrote about Dexcom (DXCM) a couple of weeks ago, so if you grabbed shares, hang on. But we like the stock’s strong move out of its base (prior high in the upper 150s) and think the recent pullback could provide an opportunity—dips to 170 would be tempting, with a stop in the mid 150s.
Inphi (IPHI) just rallied 13 weeks in a row, so it might need more than just two weeks to refresh itself. But the stock has dipped toward its 50-day line for the first time since breaking out, which is often a decent entry point—buying some around here with a 10%-ish loss limit seems like a good risk/reward.
While many Chinese stocks are still languishing, New Oriental (EDU) actually lifted out of a five-week range this week on a pickup in volume. If you don’t own any, we’re OK starting small here with a stop around 101.
SELL IDEAS
We have three outright sells today. The first two—Guardant Health (GH) and SurveyMonkey (SVMK)—tripped their stop, while the third, eHealth (EHTH), fell through its loss limit, so we’re cutting bait.
Also, as a reminder, don’t hesitate to take some partial profits in hot stocks on the way up. Roku (ROKU), for instance, looks great, but we wouldn’t argue with booking some profit and letting the rest ride with a looser stop.
SUGGESTED STOPS
Anaplan (PLAN) near 50.5
Arrowhead Pharm (ARWR) near 29.5
Avalara (AVLR) near 78.5
Boston Beer (SAM) near 390
CrowdStrike (CRWD) near 79
Enphase Energy (ENPH) near 25
Epam Systems (EPAM) near 181
Generac (GNRC) near 70
Heico (HEI) near 134
Insulet (PODD) near 131
Iqvia Holdings (IQV) near 152
JD.com (JD) near 28
Kirkland Lake Gold (KL) near 43.5
Lithia Motors (LAD) near 124
Match.com (MTCH) near 78
Okta (OKTA) near 115
Paycom Software (PAYC) near 229
Sherwin Williams (SHW) near 495
Shopify (SHOP) near 330
SolarEdge (SEDG) near 73
Smartsheet (SMAR) near 46.5
SunPower (SPWR) near 12
Teradyne (TER) near 49.5
Trade Desk (TTD) near 235
TransUnion (TRU) near 77.5
Twitter (TWTR) near 39.5
Wheaton Precious Metals (WPM) near 26.5