It’s been mostly more of the same this week, with solid action among the major indexes (S&P 500 and Nasdaq are up a bit less than 1% as we write this), while the broad market has done OK (the number of new highs has picked up some) but growth stocks have generally languished.
Really, we think the next couple of weeks will be key, mostly due to earnings season as well as next week’s decision by the Federal Reserve. With the major indexes perched near multi-month highs, and with sentiment still subpar and breadth improving, some positive earnings reaction could not just push the market to new highs but, just as importantly, launch some fresh leadership that can run for a while. Indeed, we’re encouraged by the action of most Top Ten names during the past week or two (outside of the cloud/cybersecurity sector).
As we’ve written before, then, the setup is there for the market as a whole if things go right. But that remains a big if—the indexes are still range bound and the crosscurrents remain intense; for every stock that pops higher, there seem to be a couple that hit air pockets or are rejected by resistance.
Put another way, while the tone has improved a bit for the overall market, we still don’t see many stocks or sectors in sustained uptrends. Thus, we continue to advise a relatively cautious stance while waiting patiently for the bulls (or bears) to truly take control. The evidence does tell us the next major move is likely up, but when it begins and what stocks lead the move are very much up in the air.
All in all, we’re likely to keep our Market Monitor at a level 5 as we await some sustained action—either buying or selling—to get us off the fence. That doesn’t mean you should be in the fallout shelter, but keeping new positions small and being choosy with your stocks and entry points makes sense.
BUY IDEAS
Both SolarEdge (SEDG) and especially Pinduoduo (PDD) have broken out this week on solid volume. Frankly, whether you buy or not, both are worth monitoring to see if the market is showing a change in character—for the past two months, breakouts have generally failed, so if these two can motor higher, it would be a good sign.
As for buying, we’re OK starting small with either or both here, but a stop around 83 for SEDG and 35 or 35.5 for PDD are advised.
Visteon (VC) isn’t going to be a go-go stock, but it’s shown great strength since the early June low and, after pausing for most of the past two months, reacted well to earnings this week. It’s a bit extended, but nibbling here (stop around 82) or on dips toward 90 (stop near 78) should work.
SELL IDEAS
Three stocks cracked this week, Medpace (MEDP), Proofpoint (PFPT) and RingCentral (RNG). If you still own RNG and want to give it a chance, that’s fine, but we’d keep a stop near its recent low of 148 in case the selling in cloud names re-emerges, which is a good possibility.
SUGGESTED STOPS
Acadia Pharm (ACAD) near 37
AJ Gallagher (AJG) near 87.5
Apollo Global (APO) near 37.5
Boot Barn (BOOT) near 33.5
Burlington Stores (BURL) near 187
Casey’s General Stores (CASY) near 158
Edwards Lifesciences (EW) near 219
Entegris (ENTG) near 45
Generac (GNRC) near 80
Insulet (PODD) near 143
JB Hunt (JBHT) near 108
KLA Corp. (KLAC) near 151
Lam Research (LRCX) near 235
Martin Marietta (MLM) near 256
MasTec (MTZ) near 61
New Oriental Education (EDU) near 109.5
Sherwin Williams (SHW) near 535
Teradyne (TER) near 56.5
Weight Watchers (WW) near 32.5
Western Digital (WDC) near 55.5
ZTO Express (ZTO) near 20.3