The past few weeks have been good ones for the market, but it’s depended where your money is—in growth-oriented stocks (where Top Ten has been focused) it’s been fantastic, but for the rest of the market, it’s been just OK. Such divergent environments can go on for a while, but they’re not the healthiest, and usually result in either a major rotation (out of strong names and into beaten-down areas) or a general selloff.
It appears the latter may have kicked in this week, as the major indexes have stumbled; the S&P 500 and Nasdaq are down 2.5% to 3% this week, while the broader indexes were pummeled (NYSE Composite down nearly 4%, mid caps down 6%, etc.). More importantly, the action has put the intermediate-term uptrend on the fence.
That said, the other key measure we look at—the action of leading stocks—is still encouraging. Most leaders of this nascent upmove have given ground grudgingly, and this comes after huge moves (and often breakouts) of late. Of course, that positive action can always change, but we prefer to go with the evidence in front of us.
Overall, then, it’s clear the general evidence has worsened—for the first time since the market low, the sellers are doing some damage. If you got a little too aggressive recently (not much cash on the sideline) and/or are sitting with some losers or giant-sized positions, you should consider paring back or tightening some stops.
However, we don’t think you should be pulling the plug on your strongest names; instead, you should give them a chance to rest if need be. And, as a matter of fact, we think there’s a chance further dips in leading names will result in some decent entry points, assuming the market doesn’t completely implode.
To respect the action of the indexes and the intermediate-term trend being neutral, we’ll likely nudge our Market Monitor down a notch or two come Monday. But having avoided getting too crazy on the way up, we don’t advise getting overly panicked as we pull in, especially if you own the market’s best leading stocks.
BUY CANDIDATES
Chewy (CHWY) had a big run from its March lows (22) to its April highs (46!) before pulling back over three weeks to tag its 10-week line. It’s begun to bounce on some decent volume—we’re OK taking a swing at it here if you don’t own any, albeit with a stop in the 36-36.5 area.
Ciena (CIEN) popped to new highs in early April and rose as high as 49 before chilling out for the past three weeks. Today, after tagging its 25-day line, shares are lifting nicely—it looks like a resumption of the upmove after a tight, early-stage pullback. We’re OK trying some here with a stop near 44.
It’s not a pristine entry point, but PayPal (PYPL) has tightened up nicely after popping out of a 10-month range on earnings last week. You could start small here or on dips of a couple of points, with a stop near 130, and look to average up if shares pop strongly over 146.
SUGGESTED SELLS
First off, once again, don’t forget to feed a few ducks while they’re quacking—taking a partial profit here and there in some extended names will not just put money in your pocket, but allow you to sit through the inevitable shakeouts and tough pullbacks when they happen.
As for outright sells, American Tower (AMT) and Gilead (GILD) are being kicked out today, though we could have some more on Monday. We’ve also added a few more stops to our list below.
SUGGESTED STOPS
Acceleron Pharma (XLRN) near 92
Advanced Micro Devices (AMD) near 49
Alnylam (ALNY) near 129
ASML (ASML) near 278
Atlassian (TEAM) near 160
Ciena (CIEN) near 44
CrowdStrike (CRWD) near 65
Exelixis (EXEL) near 23
Freshpet (FRPT) near 67.5
Netflix (NFLX) near 400
Nvidia (NVDA) near 285
Pelaton (PTON) near 37
Repligen (RGEN) near 113
RingCentral (RNG) near 237
Smartsheet (SMAR) near 48
Snap (SNAP) near 15
Zscaler (ZS) near 67