It was a relatively quiet week looking at the major indexes, though yesterday (where there was a brief selling wave) and this morning (follow-on selling) has shaken things up a bit. A few minutes after the open, most major indexes we track are down in the 0.5% to 1.0% range.
From an overall standpoint, the market’s evidence is mostly unchanged—the path of least resistance for the major indexes and leading stocks are up, though there are many short- to intermediate-term yellow flags with the indexes and most stocks extended to the upside in both time (nearly five months of advances) and price (Nasdaq came into today nearly 17% above its 200-day line!).
Beyond the selling of the past couple of days in growth leaders, one thing we would say has changed a bit this week is frothiness—despite the relatively quiet week in the indexes, we’ve seen some stocks make monster moves. That’s obviously great if you own them, but coming five months after a major low, it’s likely a sign that greed is picking up.
Bottom line, we’re not going to change our stance based just on a day-plus of selling, but our eyes are wide open given the extended run in the market and the complacency out there among most investors. Interestingly, because of the divergences among major indexes, another 1% to 2% drop could actually turn the intermediate-term trend down.
Right now, we’re taking things on a stock-by-stock basis—the good news is that few leaders have really cracked any key levels, so we’re not making many moves this morning. As always, though, we’ll be watching things closely and will be letting go of names that flashed abnormal action.
BUY CANDIDATES
Dynatrace (DT) broke out a few weeks ago and accelerated higher before hesitating this week, with today’s drop caused by a secondary offering of closely-held shares (no dilution). The uptrend looks fine, and while the near-term could offer some further wobbles, we’re OK buying a small position here and using a loose stop near 29.
We still think the housing group could be early in the stages of a new advance. PulteGroup (PHM) is one that broke out near the beginning of the year and has now consolidated for three weeks near its highs. We’re OK taking a stab at it here if you don’t own any, with a stop around 42.
SUGGESTED SELLS
First off, don’t forget to book some partial profits on the way up—it’s not about calling a top, but simply about managing your portfolio in a way that realizes some profits when you have them (called feeding the ducks while they’re quacking) while holding most of your shares for what ideally will morph into a larger advance.
As for outright sells, we have four today—Appian (APPN) and Invitae (NVTA), both of which reacted poorly to earnings, as well as Qorvo (QRVO) and Taiwan Semi (TSM). As always, we could have more in Monday’s issue depending on the action.
SUGGESTED STOPS
Alnylam Pharm (ALNY) near 119
Amedisys (AMED) near 179
Agios Pharma (AGIO) near 48.5
Atlassian (TEAM) near 140
Axsome Therapeutics (AXSM) near 84
Bilibili (BILI) near 23.5
Bristol Myers (BMY) near 63
Cardlytics (CDLX) near 83
Datadog (DDOG) near 41
Dynatrace (DT) near 29
Eldorado Resorts (ERI) near 60
Fortinet (FTNT) near 113.5
Fortune Brands (FBHS) near 68
Generac (GNRC) near 105
Insmed (INSM) near 27.5
Insulet (PODD) near 188
IQIYI (IQ) near 23
JD.com (JD) near 38
Kansas City Southern (KSU) near 162
Lam Research (LRCX) near 302
Lululemon (LULU) near 240
Lumentum (LITE) near 80
Morgan Stanley (MS) near 52.5
PTC Therapeutics (PTCT) near 52
Scott’s (SMG) near 115
Splunk (SPLK) near 157
STMicroelectronics (STM) near 28
Synaptics (SYNA) near 70
TransDigm (TDG) near 600