Heads up: I’m heading off on a week-and-a-half soiree early next week. You’ll receive your Monday Cabot Top Ten Trader issues per usual, of course, but next week’s (July 24) Movers & Shakers update will be abbreviated, and it’s likely the following week’s update (July 31) will be skipped (though maybe I’ll send out some updated stops as needed). If something needs addressing, it will be, but just a heads up that the next couple of M&S updates will be brief and/or skipped.
Growth stocks have finally hit a pothole this week as investors have generally rotated into beaten-down names. Coming into today, the Nasdaq was off about 1.3%, but the S&P 500 was up about 1% and the broader indexes had put on a good show (small- and mid-caps up more than 3%).
The question, of course, is whether this is the start of a “real” correction in the Nasdaq and growth names after some stunning run-ups from the March lows. And our answer is … maybe. There is some evidence both from history (many initial bull moves had their first meaningful pullback after 14 to 15 weeks up; this one has lasted 16 weeks) and individual stocks (many are miles above support, and few have bounced back) that a multi-week pullback/rest has arrived.
Because of that, we do think it’s prudent to pull in your horns a touch. If you’ve owned a stock for three to five weeks with little progress, tighten your stop or punt it. If you have some big positions, consider taking partial profits. And, of course, if you have a few losers, make sure those don’t get out of hand. Boosting your cash position a bit also makes sense.
Still, we wouldn’t go too far down the bear path because of a couple of bad days. After all, most of the intermediate-term evidence is positive, including the trends of the major indexes and leading stocks (they’ve been dented, but very few breakdowns have occurred). And the longer-term picture remains bright whether you’re looking at trend, blastoff indicators or the fact that so many leaders appear to be early-stage.
Long story short, a little paring back makes sense given the evidence of the past few weeks, but we’d also stay flexible, being willing to give your strong, profitable stocks room to maneuver, while updating stops and the like should the sellers dig in. Our Market Monitor will probably be a 6 or 7 come Monday
SUGGESTED BUYS
Horizon Therapeutics (HZNP) broke out in early May, had another volume surge in late June and has mostly rested during the past three weeks. It also shouldn’t be too tied to growth stocks one way or the other. Dips toward the 25-day line (near 54 and rising) would be tempting, with a stop just under 50.
Lululemon (LULU) continues to set up well, and it’s staged three good-looking buying volume clues in the past couple of weeks. Buying here or on a breakout above 320, with a stop near 290, should have a good shot at working.
PayPal (PYPL) has finally begun to pull in, and might need more time, but we like that Tuesday’s support day came on heavier volume than Monday’s drop (we call that over-the-top support volume). If you’re game, you could target dips toward the rising 50-day line (now at 160) with an 8% to 10% loss limit. Earnings are due out July 29.
Twilio (TWLO) is another liquid leader that has just begun to pull in, so it probably needs more time to scare/wear out some late buyers. But the 50-day line is fast approaching (207 and rising) so further dips would be enticing, with a 10% or so loss limit.
SUGGESTED SELLS
Today we have a couple of sells, though as usual, we’ll probably pare back on some others come Monday:
PagSeguro (PAGS) isn’t awful, but its recent breakout failed and it’s losing ground and at our entry point, so we’ll sell.
And Vertex (VRTX) also isn’t bad, so if you want to hold and trail a stop, that’s fine, but relative to the market it’s been losing ground. We’re exiting.
We’d also consider ringing the register in part on Novovax (NVAX), which is very powerful and has huge earnings estimates, but it’s also tripled since mid-June, so booking some gains (partial profits) is advised.
SUGGESTED STOPS
Bandwidth (BAND) near 117
Big Lots (BIG) near 33.5
BJ’s Wholesale (BJ) near 34.5
Carrier Global (CARR) near 21.5
CrowdStrike (CRWD) near 92
Datadog (DDOG) near 76
Fastly (FSLY) near 67
Immunomedics (IMMU) near 33.5
Inphi (IPHI) near 110
LGI Homes (LGIH) near 85
Lululemon (LULU) near 290
MercadoLibre (MELI) near 890
Mersana Therapeutics (MRSN) near 19
Nuance Communications (NUAN) near 22.9
Nvidia (NVDA) near 350
PagSeguro (PAGS) near 33
Pan American Silver (PAAS) near 27
Pelaton (PTON) near 51
Restoration Hardware (RH) near 232
Seattle Genetics (SGEN) near 159
Star Surgical (STAA) near 51
Teladoc (TDOC) near 166
Tesla (TSLA) near 1100
Thor Industries (THO) near 93
Zoom Video (ZM) near 215
Zscaler (ZS) near 98