Well, we’ve been around the market for a few decades (Cabot started way back in 1970, and I’ve been on the team for more than 20 years), but this week will certainly go down in the history books—stocks are again imploding this morning, and on the week, the S&P 500 and Nasdaq are each down more than 13%.
There will be time later to lick the wounds, but right now it’s about what comes next. We have a few thoughts:
First, obviously, the intermediate-term trend is now down, with the major indexes and most stocks easily cracking important support. Plus, the ferocity of the decline (straight down off the top) should be respected—now is a time to play some defense.
Second, though, we are starting to see some legitimate oversold readings that tend to occur near at least short-term lows. Coming into today, just 7% of S&P 500 stocks were above their 50-day line, while 35% were above their 200-day lines (both figures are likely to go lower today). And this morning there are around 800 stocks hitting new lows on the NYSE and 560 on the Nasdaq. Time-wise, we could be getting ready for a bounce—but the trick is whether that occurs near these levels or another few percent lower.
Third, even if we do hit a low around here, the downside momentum is so strong that there will likely be reverberations going forward—any bounce is likely to lead to retests.
In terms of the game plan, you should be practicing caution and holding a good amount of cash; limit new buying, cut your losses and possibly take partial profits in good-sized positions. That said, we’re also OK taking things on a stock-by-stock basis—if you have a winner that’s still acting well, we’re fine giving it a chance, but be sure to have an exit plan should it begin to crack.
Bigger picture: This week has been a punch to the gut, but this too shall pass, and while the correction will probably take some time to play out, when it ends there will be some great opportunities given that we still see a bunch of earlier-stage stocks with great growth prospects. Today, though, it’s best to play defense.
BUY CANDIDATES
I’m not going to recommend anything specifically to buy given the crash environment, but here are a few stocks showing relative strength that are also near some support. If the market finds its footing, they could be ready to pop:
Bilibili (BILI)—still around its 25-day line this morning
Dexcom (DXCM)—300 looks like a wall but still above its 25-day line
Datadog (DDOG) and Dynatrace (DT) both hanging above their 50-day lines
Momenta Pharm (MNTA) – above 50-day line and holding January gap
PTC Therapeutics (PTCT) – holding 50-day line, though has seen some big-volume selling of late
Teladoc (TDOC)—moonshot but extended; virus play
SUGGESTED SELLS
As you’d expect, nearly everything we had a stop on got triggered earlier this week—not ideal, but in most cases locking in some solid gains. Here’s a list of names we have as sells since Monday’s issue, both from stops and from general breakdowns.
Advanced Micro Devices (AMD)
Alnylam Pharm (ALNY)
Amazon.com (AMZN)
Amedisys (AMED)
Axsome Therapeutics (AXSM)
Bristol Myers (BMY)
Cardlytics (CDLX)
Carvana (CVNA)
Eldorado Resorts (ERI)
Fortune Brands (FBHS)
Generac (GNRC)
Inphi (IPHI)
Insmed (INSM)
Insulet (PODD)
JD.com (JD)
Kansas City Southern (KSU)
Old Dominion (ODFL)
Planet Fitness (PLNT)
PTC Therapeutics (PTCT)
Scott’s (SMG)
Sea Ltd (SE)
STMicroelectronics (STM)
Sunrun (RUN)
Synaptics (SYNA)
TransDigm (TDG)
SUGGESTED STOPS
We’re going to take away the few remaining stops we had, not because we want to hold and hope, but because the wild volatility these days prompts us to use some judgment based on relative strength and the market’s position. But don’t hesitate to email about any Top Ten stock you own—we’re happy to give you an idea of what we’re thinking.