Profit taking finally set in earlier this week, though this morning’s jobs-inspired pop has erased the losses for the major indexes. The early-week selling wasn’t totally unexpected following eight solid weeks on the upside, and we still think the odds favor some near-term ups and downs based on the news of the day.
Right now our main focus is on using the dip as a feedback mechanism—first for the overall market (is there any widespread sign of abnormal action?) and second for individual stocks (which ones are really sliding vs. those that are tightening up?).
For the overall market, the good news so far is that there’s nothing unusual about the volatility. We know the headlines can be worrisome at times (trade deal on, trade deal off), and not all the action is perfect (that “breakout” in the small- and mid-cap indexes has begun to crack), but the trends are up for all the indexes and the odds strongly favor this being a normal breather.
Individual stocks also look good, though different groups are in different positions. Many cyclical stocks, for instance, wobbled on the trade news rumors earlier this week, but their weekly charts still look solid—in fact, many are tightening up and should be near solid entry points. On the growth side of things, we also like the action, though it wouldn’t surprise us to see some more potholes/consolidation given that many have had good runs.
As we wrote above, we’re leaning toward the view that the short-term could continue to be choppy and challenging, with some news-driven moves and possibly a few names breaking down. But beyond that, the vast majority of evidence is bullish, so we are too.
For the here and now, our main focus is on using any ongoing rest period to identify which stocks might be faltering and jettisoning those, while looking for lower-risk add-on buy points in current leaders, as well as any fresh leaders that lift off. We’ll let you know what we’re finding, starting with next Monday’s issue of Top Ten.
SUGGESTED BUYS
Advanced Micro Devices (AMD) spiked as high as 42 (give or take), part of a run of nine weeks up in a row, and pulled back to nearly 37 (near its 25-day line) before bouncing back. Like most names, it could use a bit more rest, but if you don’t own any, we’re OK starting a position under 40 and using a stop around 35.
Crocs (CROX) spiked as high as 39 in late October after earnings, but a share offering pulled it back down and it slowly sagged to 33, tagging its 50-day line on Tuesday. But now the stock has pushed right back on decent (not amazing) volume. Further ups/downs are possible, but it looks like the stock’s pullback is likely over. You can enter here with a stop below this week’s low near 33.
Murphy USA (MUSA) doesn’t have an exciting story, but following its giant earnings move on Halloween, the stock has basically marked time, with no real selling volume coming into the stock. Now that the 25-day line has caught up, it’s possible shares are ready for their next leg up. We’re OK buying here (or on a move above 122) with a stop near 108 (maybe 110 if you wait for the breakout).
Seattle Genetics (SGEN) definitely looks like one of the leaders in the strong biotech/med group, and it’s finally begun to rest after a monster run. We can’t say it’s a great entry point here, but further dips into the low/mid-110s would be tempting, with a stop near the 50-day line (which is now nearing 102 and rising quickly).
SUGGESTED SELLS
First off, consider this your reminder to take some partial profits on the way up. This week’s example is Acadia Pharm (ACAD), which popped to new highs after some bullish clinical trial results. Consider selling some and playing the rest out for a bigger gain.
As for outright sells, we have just two today—Quanta Services (PWR) and Valero (VLO)—though we’ll probably have more Monday as we look to prune some good-not-great performers, booking a few profits and aiming to use the proceeds in stronger situations.
SUGGESTED STOPS
Acadia Pharm (ACAD) near 44
Agnico Eagle (AEM) near 57.5
Allegiant Travel (ALGT) near 162
Apollo Global (APO) near 41
ASML (ASML) near 259
Boot Barn (BOOT) near 38
Bristol Myers (BMY) near 55
Burlington Stores (BURL) near 205
Crocs (CROX) near 33.5
Edwards Lifesciences (EW) near 232
Generac (GNRC) near 90
InMode (INMD) near 41
Insulet (PODD) near 164
Lennar (LEN) near 58
KB Home (KBH) near 33.5
Lam Research (LRCX) near 255
Lululemon (LULU) near 209
MKS Instruments (MKSI) near 102
New Oriental Education (EDU) near 114
Novocure (NVCR) near 81
Pelaton (PTON) near 27.5
Reliance Steel (RS) near 113
RH (RH) near 193
Sherwin Williams (SHW) near 560
TAL Education (TAL) near 41.5
Temper Sealy (TPX) near 81.5
Target (TGT) near 115
Visteon (VC) near 86.5
Winnebago (WGO) near 45