Despite a few intraday wobbles, it’s shaping up to be yet another positive week for the major indexes—as of Friday morning, both the S&P and Nasdaq are up in the 2% range (give or take). Obviously, this keeps the market’s major trends pointing up and keeps us on the bullish side of the fence.
Probably the biggest “event” when looking at the market’s action this week was that, after resting for three-plus weeks, the small- and mid-cap indexes bounded ahead to new multi-month highs while outpacing their larger-cap peers.
The broadening out is probably a good thing for the overall bull market, though we’ll have to see if it represents the front-edge of a rotational phase—it certainly wouldn’t be shocking if some of the super-hot areas pulled in while other sectors attracted buyers. Not predicting it, but something to keep your eyes open for.
As for the “will we pullback?” question, our stance really hasn’t changed much. Obviously, we’re extended to the upside, and we continue to see secondary measures point to either complacency or enthusiasm; yesterday saw the greatest number of stocks hitting new highs on the Nasdaq since January 2018. As we’ve seen during the past month, that doesn’t mean the market can’t keep on keeping on, but just realize that risk is elevated and a sharp pullback (especially among individual stocks) is a real possibility.
That said, bigger picture, we think the past few months of strong, persistent market action bodes well down the road. A (very simple) study we did yesterday looked back at other times that, for the first time in at least six months (a) the S&P 500 has rallied at least 13% in just over 14 weeks and (b) was above its 200-day line. The next month was a bit tricky, but six months later the market was up an average of 8% with 95% of all occurrences showing gains. You shouldn’t trade based on that, but it’s another sign the bull market likely has months further to run.
Long story short, our stance remains unchanged—we’re riding most of our winners higher, but also using trailing stops and being choosy on the buy side.
BUY CANDIDATES
The buy side is tricky here, as most stocks are either extended to the upside or haven’t been participating. We’re OK taking a small stab at some of the names that have quieted down—albeit with tight stops in case the market does pull in.
Burlington Stores (BURL) leapt to new highs in November after earnings, and while it did eke out to new highs earlier this month, it’s since pulled in. Still, it’s north of its rising 50-day line (now just above 220), so you can start a position around here with a very tight stop near 217.
Reliance Steel (RS) is in a long-term uptrend, gapped to new highs in October after earnings and has basically tightened up since just south of 122. Starting here (or waiting for a push above, say, 124) could work, along with a stop in the 116-117 area.
Sea Ltd. (SE) hasn’t been dazzling, but it’s done nothing wrong—in fact, it hasn’t traded below its rising 25-day line (near 39.5) since October. We’re OK buying a small position around here, while using a stop in the 37 area.
SUGGESTED SELLS
First, this is your weekly reminder to take some partial profits off the table in things that have been rising for many weeks and are now accelerating higher. We could list some here, but you get the point—don’t be afraid to ring the register a bit on the upside.
As for outright sells, we have four today:
Bed Bath & Beyond (BBBY)
KBR Inc. (KBR)
Scorpio Tankers (STNG)
Target (TGT)
SUGGESTED STOPS
Aecom Technology (ACM) near 45
Alnylam Pharm (ALNY) near 110
Apollo Global (APO) near 45
ASML (ASML) near 285
Boot Barn (BOOT) near 42
Bristol Myers (BMY) near 61.5
Burlington Stores (BURL) near 217
Crocs (CROX) near 38
Dexcom (DXCM) near 199
Disney (DIS) near 141.9
Fortune Brands (FBHS) near 65
Garmin (GRMN) near 95
Generac (GNRC) near 96
Insulet (PODD) near 171
Jabil (JBL) near 40
Kansas City Southern (KSU) near 151
Lam Research (LRCX) near 279
Lululemon (LULU) near 223
Oshkosh (OSK) near 89.5
Reliance Steel (RS) near 116.5
RH (RH) near 204
Synaptics (SYNA) near 61
TAL Education (TAL) near 50
United Rentals (URI) near 151