It’s been another constructive and encouraging week for the market in our view. As we write this morning, the S&P 500 and Nasdaq aren’t up much on the week (0.4% or so), but given that we just had five weeks in a row on the upside, we take the calm action as a plus.
And we’re seeing similar action play out among leading stocks that have recently emerged—most formed relatively long launching pads (months, not weeks), blasted ahead on big volume (usually on earnings), followed through a bit on the upside (as opposed to the whack-a-mole action seen the prior few months) and, so far, have calmly consolidated on light volume.
Thus, when looking at the primary evidence (price/volume/trend of the major indexes and leading stocks), the environment looks increasingly bullish.
To be fair, though, we are seeing more than a few short-term yellow flags out there among secondary stuff. Many sentiment (yesterday’s equity put-call ratio was the lowest of the year!), breadth (small caps are down about 0.9% this week) and overbought measures point to some sort of market pullback/rotation/volatility going forward. And beyond any indicators, some sort of indigestion following a straight-up run over the past five weeks wouldn’t be shocking.
As always, we’re putting more emphasis on the primary evidence; in fact, the way the market and stocks have hung in there despite these near-term worries is a plus in our book.
All in all, we’re growing increasingly bullish when looking out the next few weeks—we’re likely going to nudge our Market Monitor up another notch come Monday. That said, it’s still important to pick your spots, and we think buying weakness is a better idea than buying strength (unless you see a barnburner of a breakout), and we’re certainly not ruling out some short-term potholes. But until proven otherwise, dips should lead to higher prices.
BUY IDEAS
One potential pullback buy going forward would be in Arconic (ARNC), which lifted to new highs in mid-October, tightened up ahead of earnings, and has rallied nicely since on solid volume. A dip back toward 29 could be bought, with a stop just below its 50-day line near 27.
Boot Barn (BOOT) had a major wobble on earnings near Halloween, but it held its 50-day line and has been stretching its legs since—shares have surged to new highs, picking up five points in recent days. Given that this follows a long, choppy phase, we’re thinking the first dip is buyable—retreats to 40 or 41 would be tempting, with a stop around 36.5.
SELL IDEAS
First and foremost, don’t forget to book some partial profits on some names that have enjoyed good runs during the past few weeks. Seattle Genetics (SGEN) is one of many examples—it looks great and will likely head higher over time, but it’s also up from its breakout near 80 at the start of October to the mid-110s today. Take a few chips off the table and then try to hold through its first normal pullback.
As for outright sells:
Entegris (ENTG) doesn’t look bad, and if you want to keep a stop near 46, that’s fine. But it’s no higher today than it was in mid-September, which doesn’t strike us as leadership-type action.
Medicines Co. (MDCO) isn’t the worst thing out there, but it did suffer some big-volume selling near the end of October, and now it’s following through on that, slicing its 50-day line. We’ll sell here.
We could have more sells on Monday as we look to thin the herd of stocks that may look okay but aren’t exactly leading the way higher.
SUGGESTED STOPS
Acadia Pharm (ACAD) near 40
AJ Gallagher (AJG) near 89
Apollo Global (APO) near 40
ASML (ASML) near 253
Boot Barn (BOOT) near 36.5
Burlington Stores (BURL) near 195
Casey’s General Stores (CASY) near 165
Edwards Lifesciences (EW) near 226
Generac (GNRC) near 86
Insulet (PODD) near 157
JB Hunt (JBHT) near 112.5
Lennar (LEN) near 56.5
KB Home (KBH) near 32.5
KLA Corp. (KLAC) near 159|
Lam Research (LRCX) near 247
Lululemon (LULU) near 199
MasTec (MTZ) near 65
New Oriental Education (EDU) near 113
Reliance Steel (RS) near 108
RH (RH) near 171
Sherwin Williams (SHW) near 556
Temper Sealy (TPX) near 81
Teradyne (TER) near 60
Target (TGT) near 105.5
TJX Cos. (TJX) near 57
ZTO Express (ZTO) near 21.2