Today’s update will be a quickie given that we’re all still recovering from candy cane overdoses, but I will be on-line quite a bit going forward, so don’t hesitate to email me with any questions or comments at mike@cabotwealth.com. We will have a new (final for 2019!) issue of Top Ten come Monday.
As for the market, there’s not much to say except ‘wow’—the major indexes have been acting like homesick angels (hat tip to Carlton Lutts for that phrase!), with some literally rising every day of the past two-plus weeks.
Short-term, we’re probably at the point where further gains (and even some of the recent gains) have a high likelihood of being given back—the indexes are very stretched above their moving averages, numerous sentiment measures are now in nosebleed territory and just about all of the news out there seems positive.
Now, to be fair, those factors don’t always lead to some sort of sharp correction (though they sometimes do). But we think it’s fair to say that the odds favor a trickier environment in the weeks ahead; whether it’s a pullback, choppy sideways action, rotation, etc., it’s unlikely (though not impossible) the market simply kites higher for another month or two.
However, the good news about the recent advance is that it likely portends good things down the road: We’re viewing the action since early October (when the market got going from both a five-month range this year, and a 20-month sideways period dating back to January 2018) as more of a kick-off that bodes well when looking out a few months. Thus, barring a massive change in character (huge meltdown), the odds strongly favor higher prices in the months ahead.
Long story short, we’re bullish, but we’re stepping a bit carefully right this second, realizing that many stocks could easily take a breather going forward—that means picking your spots on the buy side and/or starting with small positions, and considering taking a partial profit or two when offered.
BUY CANDIDATES
Murphy USA (MUSA) hasn’t done much of anything since its monster earnings gap at the start of November, but it continues to tighten up, with minuscule trading in recent days. You could nibble here, or just buy on any strong breakout above 122 or so, with a stop near 113.
We’re seeing some signs that software stocks might be ready to get going, and if that happens (it’s still an if), Splunk (SPLK) could be a leader given that it just got going in November from a big consolidation (19 months of no progress) and is perched near all-time highs. The near-term market risk is an issue, but we’re OK nibbling here or on dips into the upper 140s, with a stop around 135. And if it powers ahead in the New Year, you can then average up.
SUGGESTED SELLS
Incyte (INCY)
Lithia Motors (LAD)
Pelaton (PTON)
As an FYI, TransDigm (TDG) looks to be down huge today, but that’s misleading—it just went ex-dividend today, as it’s paying a special $32.50 per share (!) dividend to shareholders after divesting one of its operations. A reasonable stop would be somewhere down near 525 adjusted for the dividend.
SUGGESTED STOPS
Allegiant Travel (ALGT) near 169
Apollo Global (APO) near 44
Arconic (ARNC) near 29.5
ASML (ASML) near 277
Axon Enterprise (AAXN) near 68
Boot Barn (BOOT) near 40
Bristol Myers (BMY) near 59
Burlington Stores (BURL) near 212
Crocs (CROX) near 36
Dexcom (DXCM) near 193
Disney (DIS) near 140.5
Fortune Brands (FBHS) near 61.5
Garmin (GRMN) near 93.5
Generac (GNRC) near 94
Insulet (PODD) near 164
Jabil (JBL) near 39.5
Kansas City Southern (KSU) near 147
Lam Research (LRCX) near 270
Leggett & Platt (LEG) near 49.5
Lululemon (LULU) near 217
Muphy USA (MUSA) near 113
Neurocrine Biosciences (NBIX) near 105.5
New Oriental Education (EDU) near 117.5
Reliance Steel (RS) near 114.5
RH (RH) near 202
Sherwin Williams (SHW) near 565
TAL Education (TAL) near 45
Target (TGT) near 119