For the second straight week, it was the broad market that led the way higher while leading growth titles chopped around. As of this morning, all the major indexes were in the black, led by broad market measures such as the S&P 600 SmallCap (up 7%), but most growth stocks came under pressure, suffering their second bout of selling in two weeks.
From a top-down perspective, the market’s intermediate-term uptrend remains in great shape; every index is at least a few percent above its 50-day line. And what’s even more encouraging is that this week saw another major long-term measure turn green—on Wednesday, the 2-to-1 Blastoff Indicator gave a buy signal, and like the 90% signal, it bodes very well for the major indexes over the next few months. (All the same caveats apply, given that 2020 has been a rule-breaker of a year.)
That’s all to the good, but the upmove in the broad market has partly come at the expense of leading stocks—most are now two to three weeks into some sort of correction/consolidation phase. We’re not complacent, and should many leaders start to crack intermediate-term support (50-day lines, prior support areas, etc.), then we’ll change our tune.
We’ve seen a few of those breakdowns, but to this point, most leaders are thrashing around above moving averages after big runs. The volatility isn’t fun, but it’s not abnormal, so we generally advise giving your winners a chance (though partial profits are fine here and there, too).
Going forward, the question is how the current rotation plays out. Do the cyclical names continue to play catch-up while growth names deflate? Does growth reassert itself? Does the market as a whole pull in for a while?
We’re open to anything—the key to this year has been to remain flexible, and we remain so today. Right now, the evidence remains mostly bullish, so you should, too.
BUY CANDIDATES
Ciena (CIEN) broke out in early April but mostly consolidated in a tight range until mid-May, when it embarked on a nice, persistent run from 46 to 57. Now we’re seeing a little post-earnings weakness that looks normal so far—dips to 52 would be tempting, with a stop around 48.
Immunomedics (IMMU) is more speculative, but it could be setting up as a nice pullback buy—after a huge run to 35, shares stalled out for a while and are now coming in. A dip toward 28 would be enticing, with a stop under the 50-day line, possibly in the 25 area.
SUGGESTED SELLS
This morning, we have three sells, all of which tripped stops during the week: Acadia Pharmaceuticals (ACAD), Freshpet (FRPT) and Newmont (NEM). We could have more pruning come Monday depending on what we see among individual stocks. We’ve also added a handful of stops below in case the selling spreads.
SUGGESTED STOPS
Allogene (ALLO) near 40
ASML (ASML) near 312
Avalara (AVLR) near 92
Ciena (CIEN) near 48
CrowdStrike (CRWD) near 79
Five9 (FIVN) near 90.5
Fortinet (FTNT) near 122
Franco-Nevada (FNV) near 127
Guardant Health (GH) near 79
Halozyme (HALO) near 22
MyoKardia (MYOK) near 96
Nvidia (NVDA) near 305
1Life (ONEM) near 28.5
Pelaton (PTON) near 38
Pinduoduo (PDD) near 55.5
Schrondinger (SDGR) near 56
Scotts Miracle Gro (SMG) near 130
Teladoc (TDOC) near 144
TG Therapeutics (TGTX) near 16.5
Wheaton Precious Metals (WPM) near 37
Zoom Video (ZM) near 175
Zscaler (ZS) near 83