To say it’s been a crazy couple of weeks would be an understatement, with a very sharp six-day, coronavirus-induced selloff two weeks ago, followed by an equally sharp snapback in the major indexes this week, at least before this morning. The big-cap major indexes have motored all the way to new-high ground, while the other indexes we track have lifted back above their 50-day lines.
Looking at the evidence, the intermediate-term trend, which had been mostly on the fence, is now pointing up again. And the same goes for many stocks, which took sharp hits during the prior retreat but have rebounded to one degree or another.
All of that is good—the fact that the market was able to bounce back with such vigor is a good sign that there are willing buyers underneath the market. In a sense, it backs up our overall view that this remains a bull market with more in store.
That said, we still think the short-term is a bit up in the air. While up is better than down, the fact remains that there’s plenty of up-down-up-down action after the prior four-month advance—something that often signifies bulls and bears are fighting it out.
Also, there’s no question the upmove has thinned out—whereas 250 to 300 stocks on the Nasdaq were hitting new highs two weeks ago (including peak readings above 350!), the recent move to new highs has seen 175 or so hit virgin turf. That’s not a magical indicator, but it does describe a narrower environment where more stocks are seeing some selling as they rally.
And third, history says that a six-day sell phase isn’t likely enough to consolidate the market’s prior four-month run. Nothing is guaranteed, and the market can do whatever it wants, but more time is usually needed to scare/wear out weak hands.
However, we’re not trying to talk down on the rally—as we wrote above, the fact that the market has rebounded so viciously is definitely a good sign, but our point is that you shouldn’t throw caution to the wind, assuming the market will kite higher from here.
Overall, we’re bullish, and you should be holding your strong, profitable stocks, giving them room to breathe and to continue their advances. On the buy side, though, we continue to think picking your spots is best given the recent volatility and the fact that so many names have earnings coming out over the next week or two. Our Market Monitor could be pushed up a notch come Monday depending on how things look.
BUY CANDIDATES
Advanced Micro Devices (AMD) has been a leading chip stock, and now it’s in the midst of a three-week dip to its 10-week/50-day line, its first such test of that key support area since getting going. We’re OK starting a position here with a loss limit in the 45 area, with the idea of averaging up should AMD push a couple of points up from here.
Bilibili (BILI) has gone bananas this week, with a giant-volume move to new highs yesterday, which is very encouraging. We don’t advise chasing it here, but a dip (maybe coinciding with a few down days in the market) back to 25 or below would be interesting, with a possible stop near 21.5.
Lumentum (LITE) had a tedious pullback for much of January, but it didn’t break its 50-day line, and earnings have been well received—the stock has surged on solid volume over the prior three days. Dips toward 85 or 86 would be tempting, with a stop around 78.
SUGGESTED SELLS
We tend to think a short- to intermediate-term top is in on Tesla (TSLA)—there are no sure things, of course, and we’d be happy to be wrong, but the accelerated uptrend, record volume, gap-ups, etc., all point to a near-term blow-off. We’re going to hold a portion of the position and give it lots of room to breathe, but we also think it’s best to ring the register on at least one-third of your position. If you want to take all your profit, there’s nothing wrong with that, but we’re going to try to play it out, thinking the stock could have further upside, but likely after a prolonged rest.
As for outright sells, we have just two today, though we’ll see what’s what come Monday:
Match.com (MTCH)
Snap (SNAP)
SUGGESTED STOPS
Aecom Technology (ACM) near 45.5
Alnylam Pharm (ALNY) near 114
Amedisys (AMED) near 171
Axsome Therapeutics (AXSM) near 80
Bilibili (BILI) near 21.5
Bristol Myers (BMY) near 62.5
Dexcom (DXCM) near 200
Dynatrace (DT) near 27.5
Eldorado Resorts (ERI) near 58
Fortinet (FTNT) near 111
Fortune Brands (FBHS) near 66.5
Garmin (GRMN) near 96.5
Generac (GNRC) near 99.5
Guess (GES) near 20.9
Insulet (PODD) near 180
IQIYI (IQ) near 22
JD.com (JD) near 37
Kansas City Southern (KSU) near 158
Lam Research (LRCX) near 290
Lululemon (LULU) near 231
Lumentum (LITE) near 78
Paycom Software (PAYC) near 285
PTC Therapeutics (PTCT) near 50
Splunk (SPLK) near 151
Synaptics (SYNA) near 64.5
Taiwan Semi (TSM) near 55.5
Western Digital (WDC) near 64