It’s been a positive week for the major indexes; even after this morning’s horrid jobs report (20 million jobs lost in April), the S&P (up 3%) and Nasdaq (up 5%) are holding onto solid gains for the week. It’s been a bit less fruitful for the broader indexes, though they are up nicely as well.
Looking at the overall picture, not much has changed—it’s a mixed picture, but there’s definitely more good than bad. The intermediate-term trend is still pointed up, the number of stocks hitting new lows remains very tame and leading stocks continue to act well.
In fact, that last point is probably an understatement. This week saw as many big earnings gaps higher than we can remember, especially among growth-oriented stocks. Short-term, it feels a bit too good—another pothole for growth stocks (possibly as part of a rotation into lagging areas) is certainly possible soon.
That said, given that the market isn’t extended in its run and that many stocks are just breaking out, the rash of breakouts should be an intermediate- to longer-term positive. We’ll see.
Also encouraging are some sentiment measures. According to Jason Goepfert of Sundial Capital Research (you can follow him @jasongoepfert on Twitter), the S&P has rallied more than 10% over the past seven weeks, yet more than 40% (actually more than 50% in this case) of AAII survey respondents were still bearish. The two other times that’s occurred since 1987 were December 1990 and April 2009, both outstanding entry points.
With that said, the environment remains fairly divergent, which isn’t ideal—the broader indexes (as opposed to the Nasdaq) haven’t made much progress over the past four weeks, and the vast majority of stocks (83% on the NYSE, 65% on the Nasdaq) are still below their longer-term 200-day lines.
Because of the divergent action and sluggishness from many stocks and sectors, we wouldn’t be flooring the accelerator here; it’s still best to slowly and steadily extend your line as you make profits. But big picture, we take most of our cues from the trend of the indexes (up) and the action of leading stocks (very good), so we remain optimistic higher prices are on the way.
We’ll likely nudge our Market Monitor up to a level 7 come Monday.
BUY CANDIDATES
Atlassian (TEAM) looked sloppy for a while, but after a quick shakeout on earnings the stock has broken out and gone vertical on excellent volume. You could nibble here, but we’re more interested in playing the stock’s first pullback—a dip into the low- to mid-170s would be tempting, with a stop about 10% below your entry.
Five9 (FIVN) is another cloud stock that lifted on earnings—it had already broken out in early April and pulled back to its 25-day line before surging on its report. A dip to 100 would be enticing, with a stop around 90.
Vertex (VRTX) was one of the first growth stocks to break out in early April, ran up to 280 and then had a big pre-earnings shakeout back to its prior high (in the 245-250 range). But it’s rebounded nicely since and is hanging around its old highs. It’s not likely to be the fastest horse but we think it’s a decent entry here or on weakness, with a stop in the 240-245 range if you buy here.
SUGGESTED SELLS
Once again, don’t forget to feed some ducks while they’re quacking—with so many names making big moves this week, shaving off a few shares of something that’s gone vertical is probably a good idea. You know the names; anything that’s been motoring higher for most of April and into May is probably a candidate for partial profits.
As for outright sells, Bilibili (BILI) nicked our stop at 25 to the penny and has bounced. If you still own it, feel free to hold with a stop just below 25, but we’re following the rules and will have it as a sell.
We’ll probably add on a couple more sells on Monday as we try to focus on the strongest names, but at this point BILI is the only one.
SUGGESTED STOPS
Acceleron Pharma (XLRN) near 91
Advanced Micro Devices (AMD) near 48.5
American Tower (AMT) near 229
Atlassian (TEAM) near 155
CrowdStrike (CRWD) near 63
Freshpet (FRPT) near 67.5
Gilead (GILD) near 75.5
Netflix (NFLX) near 392
Nvidia (NVDA) near 278
Pelaton (PTON) near 34
Regeneron Pharma (REGN) near 495
Repligen (RGEN) near 107
RingCentral (RNG) near 229
Zscaler (ZS) near 64