It’s been another tumultuous week in the market, though much of that occurred on Monday’s 12%-ish plunge in the major indexes. As of this morning, the S&P 500 and Nasdaq are down in the 8% to 10% range on the week, while small- and mid-caps have fared worse.
Really, there’s not much new to say about the market—the trend is obviously down and most everything remains below all key moving averages (short-, intermediate- and long-term), which is reason enough to remain defensive, holding plenty of cash and remaining patient until the sellers finish up their work.
With that said, we are seeing a couple rays of light. First, the internals of the market have actually slowly improved during the past week—the peak number of stocks hitting new 52-week lows came last Thursday, despite the probe lower on both Monday and Wednesday of this week. Also, coming into today, the market actually closed in the upper part of its range each of the past three days, which hasn’t happened since the crash phase began.
Meanwhile, sentiment has gotten very negative, both anecdotally (local businesses furloughing tons of workers) and via real measures ($14 billion came out of equity funds last week; AAII bears are at seven-year highs, etc.). None of those secondary measures guarantee anything, but they may indicate an upcoming short-term change in character.
If you are a shorter-term investor, we’d keep an eye on the indexes and their 10-day moving averages (currently 2,570 or so but sliding quickly)—they haven’t been able to puncture that since the crash began, so that could be a near-term bullish sign.
Generally speaking, we’re not opposed to some nibbling (probably means positions that are less than half your normal size, dollar-wise) here or there if you already have plenty of cash on the sideline. But, on the other hand, the most important thing right now is to preserve capital—hopefully we’re near a workable low, but hope usually isn’t a great investment strategy.
Long story short, we remain very defensive, but are always keeping tabs on which stocks/sectors are resisting the decline to some extent (we’re seeing more do this), which could provide some short- and longer-term opportunities down the road.
BUY CANDIDATES
As we did last week, we’re not going to advise specific buys, but here are a few that have caught our eye due to some relative strength and/or resilient patterns:
DocuSign (DOCU): One of the strongest growth stocks out there; actually above its 50-day line as we write this
Domino’s Pizza (DPZ): Spiked off support near 200-day line; news that demand is surging isn’t hurting
Everbridge (EVBG): Wild volatility this week makes it hard to trade, but the stock is still north of its 50-day line.
FTI Consulting (FCN): Boomed off its 200-day line to new highs on Wednesday before pulling in.
GSX Techedu (GSX): Breakouts usually don’t work in tricky markets, but a near-term low in the market and a push above 46 by GSX would be mighty tempting
Masimo (MASI): Defended at its 200-day line, though some pretty stiff selling volume of late
Newmont Corp. (NEM): Not strong, per se, but repeatedly defended near its 200-day line
Regeneron (REGN): Still looks fine; actually tagged new highs yesterday
Teladoc (TDOC): North of its 50-day line
Vertex (VRTX): Impressive volume support at its 200-day line this week
Zoom Video (ZM): Probably the #1 growth stock in the market right now for obvious reasons
SUGGESTED SELLS
iRhythm Tech (IRTC): Nice story but stock imploded more than 40% in just a couple of weeks
Momenta Pharm (MNTA): Not the worst thing out there but a good-sized breakdown of late
As always, there could be others come Monday but right now those are the only two we’re throwing overboard.
SUGGESTED STOPS
None for now, as we’re using a little judgment as we’re focusing more on building a watch list and only small nibbles, rather than more aggressive investment. But don’t hesitate to email me directly (mike@cabotwealth.com) for any questions on individual names.