First off, with Memorial Day weekend dead ahead, we’re probably closing up shop a bit early today (early afternoon) and our offices will be closed on Monday as well. Your next issue of Top Ten will be posted on Tuesday, May 26, after the close. Have a great weekend!
As for the market, it’s been a little bit of a reversal this week—all of the major indexes are up, but the laggard small- and mid-cap indexes (both are up 7% to 8% on the week coming into today) led the way, as did most of the economically-sensitive areas (transports, financials, industrials) that had been meandering. Meanwhile, growth stocks were mixed, with some rising but many finally hitting some potholes.
The good news of this week’s action is that the intermediate-term trend, which was on the fence a week ago, is in much better shape—all five major indexes we track are solidly above their lower (50-day) moving averages, and it would probably take a 6% to 7% drop from here to threaten the uptrend.
As for leading stocks, some took on water, but we’ve seen no real abnormal action—following big runs, some digestion is normal to see, and in fact, we think it could set up some attractive early-stage pullback opportunities.
Of course, there are still issues out there, not the least of which is the divergent environment, which at the very least makes bouts of rotation and topsy-turvy action more likely. We’d also say that, while investor sentiment in general remains subdued and skeptical, there are growing pockets of greed as the leading stocks have done so well.
All in all, our thoughts haven’t changed much: We remain optimistic the path of least resistance is up, especially for the market’s top stocks, but we’re still picking our spots on the buy side and taking some partial profits when names go nuts on the upside, too. We’re likely to leave our Market Monitor at a level 7 heading into next week.
BUY CANDIDATES
We’re seeing a lot of potential buy-on-pullbacks opportunities that could emerge if growth stocks ease a bit more (certainly possible after their recent runs).
Bandwidth (BAND) broke out around 85 and soared to 120 within a few days, with a ton of big-volume buying during the run. Now it’s begun to pull in—we’re OK nibbling here, though prefer to get shares in the low 100s, with a loss limit in the low 90s.
DraftKings (DKNG) has only pulled back for a day, and after its big run, a longer/deeper retrenchment is likely at some point. But keep an eye on it—a “knockout” type of move into the 25 to 26 area would be tempting, albeit with a loose loss limit in the 21 area.
Precious metal stocks are usually trickier and choppier than growth names, but some of them are also setting up as pullbacks—Franco-Nevada (FNV) has effectively consolidated since the start of the month and the 25-day line (now at 140) is fast approaching. Dips to that line could be nibbled at, with a stop in the upper 120s.
Halozyme (HALO) zoomed from around 16 in early April, broke out above 22 later that month and stretched to 24 soon after. But now the stock has meandered in that range while its 25-day line (just above 23) has caught up—if you don’t own any, we’re OK nibbling here with a stop around 21.
SUGGESTED SELLS
We’ve been making an effort to gradually prune some stocks from our list even if they look OK, focusing on the stocks acting the best.
Today, that means we’re going to let go of Exelixis (EXEL), Lattice Semi (LSCC) and RingCentral (RNG)—if you want to hold on and trail a stop, there’s nothing wrong with that, but we’re going to trim these good-not-great performers from the list.
SUGGESTED STOPS
Acadia Pharmaceuticals (ACAD) near 47
Acceleron Pharma (XLRN) near 92
Advanced Micro Devices (AMD) near 51
Alnylam (ALNY) near 130
ASML (ASML) near 288
Atlassian (TEAM) near 161
Ciena (CIEN) near 46
CrowdStrike (CRWD) near 67
Freshpet (FRPT) near 67.5
Netflix (NFLX) near 404
Nvidia (NVDA) near 300
Pelaton (PTON) near 37
Pinduoduo (PDD) near 53
Snap (SNAP) near 16
Zoom Video (ZM) near 140
Zscaler (ZS) near 67.5