For most of September, the trend of the major indexes was tilted up, but it was still hard to make much money—just about any stock that was near its peak stagnated and, eventually, hit an air pocket. Meanwhile, stocks that enjoyed solid advances for a few days or couple of weeks quickly met with selling pressure.
That lack of buying was the main reason we never quite bought into the rally (our Market Monitor’s been stuck at 6 for a few weeks), and now we see the aftermath—as the selling pressure has picked up, the buyers haven’t been there to support the market, resulting in the major indexes and most areas of the market breaking down, cracking the nascent intermediate-term uptrend.
All told, we’re back to a cautious stance—we’re likely to pull the Market Monitor down to a 4 or so, and advise holding plenty of cash and being very choosy on the buy side.
That said, we’re not super negative right here; the predominant trend of the major indexes and most sectors is simply sideways. Instead, our main thought continues to be that no real money is being made right now—upmoves are fleeting, news-driven gyrations are the norm and very few stocks are hitting new highs these days. (The number of new highs on the Nasdaq has totaled just 16 each of the past two days.)
Looking ahead, we’re open to anything. We think it’s possible this recent selling wave is the third (and final) leg down of the market’s rolling five-plus-month correction—sentiment is awful here (the percentage of bullish individual investors is among its lowest readings of the past decade) and you can cut the bad news with a knife. That said, there’s nothing that says the decline can’t gain teeth, either, especially if something unexpected pops up.
The bottom line is that we’re going to need to see the buyers drive the indexes back above key moving averages and (very important) some individual growth stocks to new highs before putting much money to work. Of course, on a shorter-term basis, there could be some opportunities that arise, so we’re not saying you should be completely on the sideline. But until we see some sustained buying power, it’s best to stay close to shore (small positions, plenty of cash).
BUY IDEAS
If you’re looking to nibble on stuff, the best places to look are stocks that have already taken hits—but have held some key support and are beginning to find a few buyers.
One area to look is homebuilders, many of which remain strong. DR Horton (DHI) has pulled back a couple of points and found a little support near the 25-day line. If you want to grab a few shares with a tight stop (near 48 or so, which is a point below the 50-day line), you can.
Lululemon (LULU) is another example, as the stock has sagged in an orderly fashion since its earnings gap in early September. But now it’s tested (and held) support in the mid-180s (50-day line, prior price highs). We’re OK buying a little here with a stop in the 180 area.
For a highflier, we still like the action of Pinduoduo (PDD). Yes, it took a good-sized hit (37 to 30!) but this came after a massive run and was exacerbated by a convertible bond (dilutive) offering. But it held its 50-day line and has begun to bounce a bit. Nibbling here with a stop near 29 is an idea—just be willing to pull the rip cord if the sellers reappear.
SELL IDEAS
Not surprisingly, plenty of names tripped our stops during the early-week selling. As always, if you still own any of these and want to give them a bit more rope, that’s fine, just make sure a bad situation or two don’t get much worse:
Arconic (ARNC)
Blackstone (BX)
Huya (HUYA)
Lattice Semi (LSCC)
Lithia Motors (LAD)
LivePerson (LPSN)
Novocure (NVCR) – could give it a bit more rope if you own some
PagSeguro (PAGS)
Synopsys (SNPS)
Take-Two Interactive (TTWO)
Teladoc (TDOC)
TransDigm (TDG)
Twitter (TWTR)
SUGGESTED STOPS
Acadia Pharm (ACAD) near 35
Allakos (ALLK) near 73
Apollo Global (APO) near 35
Casey’s General Stores (CASY) near 157.5
Floor & Décor (FND) near 45
GDS Holdings (GDS) near 38.5
Generac (GNRC) near 74.5
Insulet (PODD) near 141
JB Hunt (JBH) near 104
KeySight (KEYS) near 91.5
Martin Marietta (MLM) near 251
Medpace (MEDP) near 75
New Oriental Education (EDU) near 104.5
Sanderson Farms (SAFM) near 141
Sherwin Williams (SHW) near 518
Teradyne (TER) near 53
Western Digital (WDC) near 54.5