The ping-pong action of the market has continued this week, with quick, sharp fluctuations based on daily (and often intraday and even overnight) news and rumors of the progress (or not) of the U.S.-China trade negotiations, including this morning’s good-looking pop. Frankly, we are encouraged by the action, but to this point our stance hasn’t changed.
That’s because, bigger picture, the predominant trend remains sideways for the major indexes (trapped in a sideways range for five to seven months, depending on the index) and most individual stocks—in fact, the Nasdaq has seen an average of just 30 stocks hitting new highs over the past couple of weeks, so very little is running way to the upside. Thus, we still favor remaining in a relatively cautious stance.
However, as we said above, we are growing more encouraged. The market’s latest dip, which has occurred amidst a flurry of bad news and uncertainties, has gotten many investors to throw in the towel based on some sentiment and breadth measures. Given that this is the third tedious correction in the market since the start of May, it’s fair to say many weak hands have already left the building.
Throw in the fact that the longer-term trend is still positive and the numerous big-picture studies from earlier this year, and the odds favor the market’s next major move being up.
Thus, we’re open to the latest selloff being the final one of this rolling five-plus-month correction—and that this latest bump up is the start of something real. But we still need to see the bulls show more power before we advise putting a lot of cash to work. That would involve not just getting most indexes back above their 50-day lines (which is happening this morning), but just as important, seeing some high relative strength stocks (like those in Top Ten) push to new highs on solid volume.
Overall, we still advise holding your resilient stocks; if something has held up well (or bounced back strongly toward its highs) in this environment, there’s a good chance it will be among the leaders of the next sustained upturn. Some buying here or there is fine by us. But we still believe keeping some powder dry makes sense until the market’s character changes for the better.
We’re likely to keep our Market Monitor at a 5, though that could change depending on the market’s action today and Monday.
BUY IDEAS
Burlington Stores (BURL) isn’t the sexiest name, but it’s been a longer-term winner and the stock continues to handle itself well. After gapping to new highs on earnings in late August, it’s consolidated nicely since, including a nice bullish volume clue in mid-September. And it appears to be at a good risk-reward point if you want in—you can start a position here with a tight (percentage) stop around 184.
Chipotle Mexican Grill (CMG) is chopping around with most stocks, but it remains perched near its highs and has steadied itself after a big down day in early September. You could nibble here, or just keep it on your watch list—a breakout above 850 (with a stronger market) would be tempting.
KB Home (KBH) isn’t a buy right here, but we like the strength in the sector (homebuilders) and the persistent advance in the stock (working on its 10th straight up week), including a big-volume push after earnings a couple of weeks back. Some sort of pullback or shakeout toward the 25-day line (now at 32 and rising) would probably mark a solid entry point, with a stop around 29.
SELL IDEAS
We’ve had three stocks trip their stops this week, and thus they will be sold. As always, if you still own them and want to give them a little wiggle room, that’s fine, especially if you already have plenty of cash on the sideline. But following the system, these three names will be sold from Top Ten:
GDS Holdings (GDS)
KeySight (KEYS)
Sanderson Farms (SAFM)
SUGGESTED STOPS
Acadia Pharm (ACAD) near 36
AJ Gallagher (AJG) near 85
Apollo Global (APO) near 36
Boot Barn (BOOT) near 31.5b
Casey’s General Stores (CASY) near 157.5
Chubb (CB) near 152
Floor & Décor (FND) near 45.5
Generac (GNRC) near 77.5
Insulet (PODD) near 141
JB Hunt (JBHT) near 104
Martin Marietta (MLM) near 254
Medpace (MEDP) near 75
New Oriental Education (EDU) near 105
Sherwin Williams (SHW) near 522
Teradyne (TER) near 54
Weight Watchers (WW) near 31.5
Western Digital (WDC) near 54.5