First off, some housekeeping: Next week will be our second of two weeks off all year for Top Ten—there will be no issue on Monday, though depending on what’s going on, I might send a quick “Movers & Shakers” update late next week. In the meantime, Merry Christmas, Happy Chanukah, Happy Holidays to you and yours.
As for the market, it continues to act very well amidst a vacuum of selling pressure. As we write this, the S&P 500 (up 1.2% or so) and Nasdaq (up 1.8%) are solidly in the green, and small- and mid-cap indexes have actually done a bit better.
Bigger picture, the vast majority of the intermediate- and (especially) longer-term evidence remains in good shape. The trends are clearly up for the major indexes, and a bunch of big-picture studies continue to tell us that higher prices are likely in the year ahead. Don’t forget that, when looking at many major indexes no net progress was made for a full 20 months (January 2018 to the early-October bottom this year), so from a longer-term perspective, we’re far from being “overheated.”
That said, it’s fair to say that we’re now seeing some signs of complacency among investors, both in terms of actual indicators (put-call ratios, some sentiment surveys) and a couple of anecdotal things we monitor.
We wouldn’t go nuts with such data, but given that there’s been little hesitation during the past 12 weeks, some rocky trading, rotation, potholes, etc., could be in store, be it now or possibly after the seasonally-positive holiday period.
As for individual stocks, it’s been more mixed, but the good news is that even those stocks and sectors that have either suffered short, sharp retreats (some growth titles) or have gone dead for a few weeks (some cyclical names) didn’t break any key support—and many have snapped back to (or close to) new highs in recent days.
All in all, then, we remain bullish and think higher prices are generally in the offing; we advise sticking with most of your best performers and keeping your eyes open for opportunities on the buy side. However, you shouldn’t leave your brain at the door, either—given the solid run since October and the fact that the indexes and many stocks are extended to the upside, it’s best to be choosier than normal on the buy side, consider taking some partial profits and tighten stops on so-so actors.
BUY CANDIDATES
Insulet (PODD) is one of those aforementioned growth stocks that’s pulled back tediously in recent weeks (186 to 170) but hasn’t done anything wrong (low volume on the decline; above the 50-day line at 167.5). As a pullback buy, we’re OK stepping in around here, albeit with a tight stop around 164); or, you could wait for some strength (buying above 178) with a stop around 167.
Sherwin Williams (SHW) broke out from a huge base in July and enjoyed a slow, steady advance through early November. Since then, despite some hiccups in housing-related names, it’s tightened up just above its 50-day line (now near 574). You could buy here with a super-tight stop (percentage-wise) near 563, or wait for a strong push above 590 and use a stop near 570.
Vertex Pharmaceuticals (VRTX) enjoyed a persistent eight-week run to new highs, and this came after two years of chopping around—a strong sign that a sustained move has occurred. Now the stock has pulled back grudgingly for a couple of weeks—further weakness is possible, but we’re OK starting a position around here with a stop in the 200 area. Odds favor the next big move being up.
SUGGESTED SELLS
Today, we have three official sells—Agnico Eagle (AEM), KB Home (KBH) and Visteon (VC)—though we’ve added and tightened a bunch of stops below in case the sellers show up.
SUGGESTED STOPS
Allegiant Travel (ALGT) near 167
Apollo Global (APO) near 43.5
ASML (ASML) near 275
Axon Enterprise (AAXN) near 67
Boot Barn (BOOT) near 39.5
Bristol Myers (BMY) near 58.5
Burlington Stores (BURL) near 211
Crocs (CROX) near 35.5
Dexcom (DXCM) near 191
Fortune Brands (FBHS) near 61
Garmin (GRMN) near 93
Generac (GNRC) near 92.5
Incyte (INCY) near 86.5
Insulet (PODD) near 164
Jabil (JBL) near 39
Kansas City Southern (KSU) near 146
Lam Research (LRCX) near 267
Leggett & Platt (LEG) near 49
Lululemon (LULU) near 215
Neurocrine Biosciences (NBIX) near 104.5
New Oriental Education (EDU) near 116.5
Pelaton (PTON) near 28.9
Reliance Steel (RS) near 113.5
RH (RH) near 200
Sherwin Williams (SHW) near 564
TAL Education (TAL) near 44
Target (TGT) near 117.5