It’s been a constructive week in the market, with most major indexes tacking on gains, and the largest upmoves registered by small- and mid-cap indexes. That’s encouraging to see as they were lagging badly heading into the Fed meeting on Wednesday, with the S&P 600 SmallCap threatening to hit four-month lows!
Even so, by our measures, the intermediate-term trend of the major indexes never came that close to turning down, and now, after the recent bump, the trend remains solidly up.
As for the broad market, the number of stocks hitting new lows (one of our favorite measures of how the broad market is doing) had expanded to worrisome levels for seven days, from last week through early this week. Considering these elevated readings began just three days after the Dow and S&P 500 hit their recent highs, it was clearly a sign that the broad market was weakening.
Happily, along with the small- and mid-cap indexes, the number of stocks hitting new lows has improved since the Fed meeting, which is another good sign.
Ideally, the past two to three weeks were more of a passing thundershower for the broad market, as opposed to the start of a harsh winter. That said, we’d like to see more evidence on that front before concluding the broad market is back in gear with the stronger, big-cap indexes.
All of the above applies to some flies in the ointment we’ve seen during the past two to three weeks. But the most important market evidence—the trend of the major indexes, and the trend and action of leading stocks—has been bullish for many months.
Overall, then, we remain mostly bullish, though the funky action of the broad market in recent weeks is probably a good reason to gently lift your foot off the accelerator. If you’re fully invested or on margin, selling your weakest stock or two makes sense. And on the buy side, be selective, looking for good entry points in strong stocks. We’ll likely keep our Market Monitor around a level 7 in Monday’s issue.
BUY IDEAS
Adient (ADNT 73) continues to act very well, running to new highs in recent days (including a stretch of seven straight up days) before pulling back the past two. We think you could nibble here or see if you can grab shares a point or two below here, using a stop near 66.
Clovis Oncology (CLVS 72) tightened up beautifully for about six weeks, touched its 50-day line and then exploded higher on some positive drug news. Short-term volatility is a given, but we’re OK buying a small position here with a stop near 60.
HubSpot (HUBS 65) has come alive, lifting to new highs last week on solid (though not overwhelming) volume Monday and continuing higher since then. The move produced a new price and relative performance (RP) peak. If you’re game, pullbacks toward 63 would be tempting, with a stop near 57.
Paycom Software (PAYC 56) has begun to tighten up after a great earnings gap and follow through from early February through early March. Dips to 55 would be buyable, with a stop around 51.5.
SELL IDEAS
We have seven outright sells this week: Ally Financial (ALLY 21), Citizens Financial (CFG 36), Southwest Airlines (LUV 53), Tesaro (TSRO 152), U.S. Steel (X 38) and Western Alliance (WAL 51). Also a sell is Lumentum (LITE 49), which just barely nicked our stop this week before bouncing back strongly. If you still own LITE, you should hold on; if you were knocked out of it, sit tight for now—the stock could provide a good entry point in the next week or two.
Also, as a reminder, don’t forget to book some partial profits in winners that have been running for a while—Applied Materials (AMAT 39) and Incyte (INCY 148) are two examples.
SUGGESTED STOPS
Adient (ADNT 73) near 66
Alaska Air (ALK 94) near 92
Alcoa (AA 36) near 34
ASML Holding (ASML 128) near 120.5
Applied Materials (AMAT 39) near 35.5
Cavium (CAVM 72) near 67
Charles Schwab (SCHW 43) near 39.5
Clovis Oncology (CLVS 72) near 60
Conduent (CNDT 16) near 14.9
Dave & Buster’s (PLAY 59) near 56
Deere (DE 111) near 106
DeVry (DV 33) near 31.9
Essent Group (ESNT 36) near 34.5
Glaukos (GKOS 48) near 42.5
Grand Canyon Education (LOPE 69) near 61.5
Hancock Holding (HBHC 47) near 45
Incyte Corp. (INCY 148) near 128
Marriott Vacations (VAC 95) near 88
Micron Technology (MU 26) near 23.6
Olin Corp. (OLN 33) near 29.5
ON Semiconductor (ON 15) near 14.4
Quanta Services (PWR 37) near 36.5
Royal Caribbean (RCL 98) near 91.5
Sanmina (SANM 40) near 38
Seagate Technology (STX 47) near 44
SVB Financial (SIVB 193) near 179
Square (SQ 17) near 15.8
Take-Two Interactive (TTWO 58) near 55.5
Texas Capital Bancshares (TCBI 86) near 79.5
TTM Technologies (TTMI 16) near 15.5
Univar (UNVR 32) near 29.9
Western Digital (WDC 77) near 73.5