It’s been a very interesting week, with mostly encouraging action but also plenty of crosscurrents to deal with.
First and foremost, our intermediate-term trend model (called the Cabot Tides) is turning positive today, which is the first meaningful sign that the buyers are stepping up. We also like that the post-March 23 rebound in the big-cap indexes has eaten up a lot of the prior decline—more so than past dead cat bounces.
Of course, the longer-term trend is still iffy (most indexes and stocks are still below longer-term moving averages, etc.) and few stocks are really in uptrends, so when it comes to putting money back to work, we favor going relatively slowly on the buy side.
Another reason to go slow is the aforementioned crosscurrents—coming into today, it’s been about as bifurcated a week as we can remember. The Nasdaq was up 4.5%, but the S&P 500 was flat-ish while broader market indexes were actually down 5% to 6%!
Confirming that was the action of individual stocks, with Top Ten-type stocks (mostly growth, but some others, too) soaring over the first four days of the week before trading mixed today, while the beaten-down areas (banks, transports, REITs, etc.) bounced sharply this morning. It raises the question of whether the strong stocks will actually take a breather even if the indexes rally.
Still, we’re not dumping on the action—there’s certainly more good than bad recently, and the fact that many growth-y names have perked up is a plus. Sure, there’s a chance the rally could fail, but as always, just go with the evidence, which continues to improve. We’re likely to bump our Market Monitor up a notch or two come Monday.
As for buying, we’d probably start with smaller positions and then use the stocks (and the market) as a feedback mechanism; if you make progress, you can extend your line (either by averaging up in stocks you have, or buying new ones), and if you don’t, you can slow down a bit. By taking it step by step, you can get aggressively invested quickly if the rally works—but won’t get too heavily invested if the sellers reappear.
BUY CANDIDATES
DocuSign (DOCU) has certainly shown leadership-type action, leaping to new highs twice in the past three weeks. After its recent ramp, the stock has begun to pull in a bit—we think dips into the mid-90s would be tempting, with a stop around 85.
Netflix (NFLX) has shown classic breakout action, pushing higher many days in a row on big volume before finally giving up ground today. The firm does report earnings next Tuesday, which is a risk, but if you don’t own any we’re not opposed to nibbling on this pullback and seeing what earnings brings.
Okta (OKTA) could easily pull in some, but it’s got the look of a real leader, as it’s been smoke up a chimney during the past two weeks, motoring to new highs (and even pushing higher today with most growth stocks down). We’re OK buying a little here, or preferably on dips of a few points, with a loose stop near 128.
Slack (WORK) has been trying to steady itself after its huge shakeout and recovery in the middle of March. It’s back near multi-month highs, with some big-volume accumulation of late, too. Volatility is extreme, but we’re OK nabbing a few shares here with a stop around 24, with the idea of averaging up on a powerful breakout north of 30.
SUGGESTED SELLS
There’s nothing wrong with Domino’s Pizza (DPZ), so if you want to hang on with a stop (maybe around 320) that’s fine. But we don’t see it as a real leader and it’s “wedged” higher of late on low volume. We’re going to sell and get out with a tiny profit.
We’re watching some others, but DPZ is the only sell today.
SUGGESTED STOPS
We’re putting a few stops back in place now that the market is beginning to kick into gear, mostly on names that look good but not explosive (at least not yet).
Atlassian (TEAM) near 139
GDS Holdings (GDS) near 52
Repligen (RGEN) near 96
Vipshop (VIPS) near 15.5
Zscaler (ZS) near 59