To say it’s been a topsy-turvy week has been an understatement. The rotation that we started to pick up on a couple of weeks ago was unleashed late last Friday and the first couple of days of this week, with just about any stock and sector that’s enjoyed a good run this year coming under pressure—including more than a few names that flashed abnormal intermediate-term action.
On the flip side, the broad market has come to life, with beaten-down areas surging, lagging indexes like small caps and mid caps doing the same and the S&P 500 actually testing new high ground! In fact, the market’s intermediate-term trend has now turned up, which, combined with lots of other evidence (horrid sentiment, a big dry-up in the number of stocks hitting new lows) bodes well.
Right now is basically the definition of an environment where you should take things on a stock-by-stock basis. If your loss limits are tripped, sell. If a decent winner you had is back to breakeven, put in a tight stop. And if you have a good-sized winner that’s tripped its stop, sell at least some of your shares, if not all.
On the flip side, while we don’t advise going guns blazing, there are opportunities out there, and it’s not all off-the-bottom names—again, the selling was more about anything that’s had a good run this year, so decent-looking growth names that have been etching consolidations are actually finding buyers.
With that said, we do think it’s best to go slow for the moment. Oftentimes, when there is this much volatility and this many crosscurrents under the surface, you’ll see vicious re-rotation (money sloshing back and forth based on the news of the day), which makes it difficult to get sustained advances out of individual stocks. Plus, of course, there’s always a chance that the selling in the leaders spreads to the rest of the market.
As we said above, you should mostly be taking things on a stock-by-stock basis—selling those that are failing and looking to add shares of fresh leadership. But on the buy side, it’s best to remain choosy and probably stick with smaller positions when starting out. All told, we’ll likely boost our Market Monitor next week, though not in a huge way given the rotation.
One last point: There are no sure things, but many of the hot, popular software and cybersecurity names look like they’ve topped for a while. That’s not to say they can’t bounce, possibly a decent amount, but most of these stocks had giant runs during the past 12 to 18 months, stalled out for a while and have decisively broken below their intermediate-term (and, for some, longer-term) uptrends. Thus, while they seem like bargains (and maybe they are short-term), the odds are against them being leaders any time soon.
BUY IDEAS
Casey’s General Stores (CASY) has wobbled during the recent rotation and after earnings this week. But it’s found support at its 50-day line, which is its first dip to that support area since its long-term breakout in June. We’re OK with a small buy around here and using a relatively tight percentage stop in the upper 150s.
JD.com (JD) is one of many Chinese stocks that has actually set up a good-looking launching pad during the past few months. JD hasn’t been able to break out just yet, but it’s very close—if you’re interested, you could nibble here with a stop around 29 and look to add shares on a push north of 32.5, or, to be safer, just simply wait for the breakout before grabbing any shares.
Teradyne (TER) had a big earnings-induced breakout from a long-term range in July before getting pulled down by the market and the renewed trade tensions. But it steadied itself in August and has pushed back toward its prior highs this month. The group looks solid, too. You could start a position here or (preferably) on dips toward 55, using a stop in the 50-51 area.
SELL IDEAS
First, if you haven’t yet, we’d favor taking partial profits in some highfliers and using a reasonable stop for the rest. Yes, they’re off their highs, but if you have a solid profit remaining there’s no reason not to book at least some around here and then see if the stock can find its footing. Roku (ROKU) is a good example of this–it’s not broken, but after a huge run, it’s certainly wobbling.
As for outright sells, there are a bunch that tripped our stops earlier this week and/or have continued to break down in recent days:
Appian (APPN)
Epam Systems (EPAM)
Five9 (FIVN)
Kirkland Lake Gold (KL)
Q2 Holdings (QTWO)
SolarEdge (SEDG)
SunPower (SPWR)
TransUnion (TRU)
Universal Display (OLED)
Wingstop (WING)
SUGGESTED STOPS
Anglogold (AU) near 19
Agnico Eagle (AEM) near 55.5
Generac (GNRC) near 73
Insulet (PODD) near 134
JD.com (JD) near 29
Lattice Semi (LSCC) near 17.8
Lithia Motors (LAD) near 125
LivePerson (LPSN) near 35.5
Neurocrine Bio (NBIX) near 90
Novocure (NVCR) near 72
PagSeguro (PAGS) near 43.5
Roku (ROKU) near 127
Sherwin Williams (SHW) near 505
Shopify (SHOP) near 335
Synopsys (SNPS) near 132.5
Tandem Diabetes (TNDM) near 61
Teradyne (TER) near 51
TransDigm (TDG) near 495
Twitter (TWTR) near 40.5
Wheaton Precious Metals (WPM) near 26.5