The market is enjoying another solid up week, as most major indexes put some distance between themselves and their December-January trading ranges. Moreover, we’re seeing more explosive moves from individual stocks on earnings, with more than a few surging on monstrous volume.
That said, we do see some yellow flags out there, though most of them are secondary in nature. First, It would be nice to see small caps get going; the S&P 600 SmallCap has still yet to break free of its trading range like the other major indexes. Given that the small caps were the leaders following the post-election blastoff, that’s a worry.
Sentiment is getting complacent as well, according to many measures. And as good as it is to see the indexes get going, there are a decent number of stocks and sectors that are doing more sitting than advancing.
Like we said above, though, these are mostly secondary measures—things like divergences among indexes, sentiment and a couple of lagging sectors aren’t usually death knells for the market. What we would say is that, short-term, after a nice run, a pothole or air pocket wouldn’t be shocking to see, especially if some surprising bad news hits the wire one day.
However, the bigger picture remains solid—the market’s had a big blastoff, a tight consolidation for a couple of months and is now resuming its uptrend. Moreover, most individual stocks are in good shape. Finding entry points is a bit tricky (do you chase or wait for some pullback?), and now’s probably not the best time to go out and buy five stocks all at once. But our overall view is that higher prices are likely going forward.
Our Market Monitor is at a level 8, and could be bumped up a notch depending on the rest of today. But whatever the exact level, you should remain bullish—while partial profits are always possible, you should give most of your winners a chance to keep advancing, while looking for emerging new leaders.
BUY IDEAS
Alaska Air (ALK 96) has been in a solid uptrend since early November, and it spiked to new highs on great volume earlier this month before a modest pullback in recent days. We think it looks buyable around here with a stop around 90, which is a couple of points below its 50-day line.
Royal Caribbean (RCL 95) gapped up strongly in late January, tightened up, pushed ahead to new highs on light volume but is now easing lower. We’re looking at this as a normal rest period following its huge gap. You could buy some here if you don’t own any, and use a stop in the 88 to 89 area.
Seagate Technology (STX 47) continues to act well following its earnings gap last month, with a steady rise during the past two weeks before a small dip in recent days. A dip to 46 would be tempting, with a stop near 42.
Many financial stocks look good, though some look better than others. We like Western Alliance’s (WAL 52) good-volume breakout above 51 or so this week, followed by a pullback with the market yesterday and this morning. WAL looks buyable around here with a stop at 48.5.
XPO Logistics (XPO 49) reports earnings next week, but this week it released (and reaffirmed) its outlook for the next couple of years, which encouraged investors. Shares have come to life on good volume following a two-month rest period, though they have hit some resistance near 50. If you’re game, you could buy a half position here with a stop near 43, and look to average up should XPO push higher following earnings next Wednesday.
SELL IDEAS
While the market has been strong, now’s a good time to take a look at your stocks and either sell or tighten stops on your losers and laggards you’ve been holding for a while.
Tonight, we have five sells, some of which tripped their stops and a couple that aren’t looking like leaders: Berry Plastics (BERY 51), MGM Resorts (MGM 26), WellCare Health (WCG 137), Freeport-McMoRan (FCX 15) and Signature Bank (SBNY 159).
Moreover, we continue to raise stops on many Top Ten stocks should they and/or the market hit a pothole.
SUGGESTED STOPS
Adient (ADNT 64) near 60
Allegheny Technologies (ATI 20) near 19
Applied Materials (AMAT 35) near 33.5
Cavium (CAVM 67) near 63.5
CF Industries (CF 34) near 31.5
Charles Schwab (SCHW 41) near 38
Dave & Buster’s (PLAY 58) near 53.5
Deere (DE 109) near 104
DeVry (DV 33) near 31.5
Eagle Materials (EXP 105) near 100
Grand Canyon Education (LOPE 60) near 57.5
Greenbrier (GBX 45) near 42.5
HD Supply (HDS 43) near 41.9
Hancock Holding (HBHC 47) near 43.5
Micron Technology (MU 23) near 22
Nvidia (NVDA 107) near 103
Quanta Services (PWR 37) near 34.5
SVB Financial (SIVB 183) near 168
Square (SQ 14) near 13.6
Take-Two Interactive (TTWO 59) near 54.5
Tesaro (TSRO 187) near 160
Texas Capital Bancshares (TCBI 87) near 79
Thor Industries (THO 110) near 101.5
Univar (UNVR 30) near 27.8
U.S. Silica (SLCA 57) near 55
Western Alliance (WAL 52) near 48.5
Western Digital (WDC 75) near 72.5
XPO Logistics (XPO 49) near 43