Stocks rebounded late in the day last Friday and staged a powerful bounce on Monday, but we have to say, the action since then has been more than a bit discouraging—net-net, the major indexes are now down on the week and aren’t far from last Friday’s intraday lows.
Still, we don’t invest based on being encouraged or discouraged. What counts is the evidence, and it remains in rough shape—the intermediate-term trend is clearly down for the market and most stocks, and if the market can’t get off its knees later today, our longer-term trend model could be on the fence.
To be fair, it’s not all bad news out there. Investor (and man-on-the-street) sentiment has definitely been dented, and we are seeing some very short-term positive divergences in the market (fewer new lows so far today vs. last Friday).
Those rays of light are worth keeping in mind, but until the buyers can show up for more than a few hours, we advise staying cautious, holding plenty of cash, limiting new buying to just small positions (if at all) and focusing mostly on capital (and confidence) preservation until this storm blows over, something that is likely to take some time as investors reposition.
Now, we realize that the volatility (both up and down) can be attractive to some who want to jump on “bargains” or simply to try to make a few percent here or there in fast-moving stocks. If you want to nibble on a couple of things, that’s up to you. Just remember that the big money will eventually come in the big swing—owning a fresh, early-stage leader in a hot sector just as the market takes off. The main goal is to get from here to there with your portfolio in one piece.
Back to the here and now, the “good” news about a market wipeout like this, including today’s retest of last week’s lows is that it makes it easy to spot which stocks are holding up the best—these are the names that should be near the top of your shopping list or, for those willing, to do a little nibbling.
BUY CANDIDATES
As we did last week, we’re not going to advise specific buys as just about every stock is moving wildly, but here are a few that have caught our eye due to some relative strength and/or resilient patterns:
Atlassian (TEAM)—Group is hit or miss, but the stock nearly hit a new high yesterday morning.
Acceleron Pharma (XLRN)—Speculative, but tagged new highs this week and sitting at its 25-day line.
Franco-Nevada (FNV)—As wild as wild can be, but one of the better actors even among gold stocks.
GDS Holdings (GDS)—Actually leapt to a new high this week before backing off a bit—and in a solid uptrend.
iRhythm (IRTC)—Super strong after earnings to new highs.
SolarEdge (SEDG)—Bounced most of the way back after last week’s dip.
Teladoc (TDOC)—Remains resilient, though some of that is thanks to the virus.
Zoom Video (ZM)—Great earnings report; stock is wild but no question it’s one of the strongest out there.
SUGGESTED SELLS
If you already have a lot of cash, you can use some judgment when it comes to selling, but we’re letting the following go due to either an inability to bounce or outright distribution. If you want to sell some here or sell the rest on a bounce, that’s fine, but we’re cutting the following loose:
Envestment (ENV)
Thor Industries (THO)
SurveyMonkey (SVMK)
Zillow (Z)
SUGGESTED STOPS
None for now, as we’re using a little judgment and as we’re focusing more on building a watch list and only small nibbles, rather than more aggressive investments.