Heads up: Just as a reminder, I’m currently on vacation, but I wanted to give you all our latest thoughts given the market’s hiccups. Next week’s update could be skipped altogether, but that will depend on the market (I won’t leave you hanging if things get dicier). As for the issues, though, nothing will change—you’ll still be getting the regular Cabot Top Ten Trader issue both this coming Monday (July 27) and the following Monday (August 3). Thanks!
As of Friday morning, it’s been another rotational week, though that’s mainly due to yesterday’s growth stock decline. All in all, the Nasdaq is down a fraction of a percent, but the other indexes are all in the green, led by the former laggards (small caps up 2.2%, mid caps up 1.5%, etc.).
Bigger picture, nothing has changed with our thoughts—this is a bull market, with the intermediate-term trend still pointed up and few (if any) real leading stocks having cracked any key support. Moreover, secondary measures like the number of stocks hitting new lows (still very tame on the NYSE and Nasdaq) and overall money flows into equity funds and ETFs (near the lower end of their range over the past year) are also encouraging.
Near-term, though, we’re starting to see more dents in the market’s armor. Following last Monday’s huge selloff, growth stocks did bounce, but few returned to new-high ground like the Nasdaq briefly did; indeed, the number of stocks hitting new highs has been (slowly) easing since early July. And then we saw another big selling wave yesterday and early this morning.
We’re also seeing more sloppy action among leaders, which includes selling on “good” earnings news. Throw in the fact that some defensive areas are beginning to perk up even as growth stocks chop around, as well as historical studies that tell us the first “real” pullback occurs three to four months into a move (which is around now) and our antennae are up.
The next thing we’ll be looking for is any breakdowns (especially on earnings) from leading stocks; if we see that, it would add to the evidence that an intermediate-term pullback is underway. (Longer term we remain optimistic most leaders are still early-ish in their overall advances.)
On the flip side, given the fact that most of the big-picture evidence remains positive, this could easily turn out to be another scary short-term wobble that gives way to higher prices.
Thus, the key now isn’t to anticipate (doing that will eventually lead you very astray in the market), but to have your plan in place—update your stops, know what names you might take partial profits in, so on and so forth. Right now, we remain mostly bullish, but it’s likely the next two or three weeks of earnings will tell the intermediate-term tale for the market and many leading stocks.
SUGGESTED BUYS
We can’t say it’s a pristine entry point quite yet, but Crispr Therapeutics (CRSP) quickly popped after our write-up in late June and, impressively, has actually been tightening up in recent days while growth gets hit. A lot will depend on the market, but a kiss of the 25-day line (now at 84.5 and rising quickly) in the days ahead could mark a solid entry point.
It’s a similar story with Farfetch (FTCH), which accelerated higher beginning near the tail end of June, kissed a new high two days ago (far better than most growth stocks) and is taking the growth stock selling in stride. The 25-day line (now above 19 and rising fast) should offer support should shares retreat further in the days ahead.
It’s not the fastest horse, but Nu Skin (NUS) gapped on higher guidance three weeks ago and has become very tight since then; this week’s range (so far) is one of the tightest in months. You could nibble here with a tight stop near 42 if you want in.
This is definitely high risk given its massive run, but Zoom Video (ZM) has been one of the real leaders this year, respecting its 50-day line as it’s put on an amazing show. The stock is now hesitating with all growth titles, but volume has been very light and the 50-day line (now at 228 and rising) is catching up fast. If you want to take a swing at it, you can buy some here or on further weakness and use a stop just under the 50-day line.
SUGGESTED SELLS
We’re going to be a bit aggressive and sell MercadoLibre (MELI) here, which after a very smooth run has started to see lots of up-down action, which is often a red flag. If you want to trail a stop, that’s fine, but we’ll book our profit and move on.
If you were able to grab Sunrun (RUN) on our recommendation just under 30, we’d probably consider selling a chunk of it here, while trailing a stop for the rest—it looks great, but it’s prudent to ring the register a bit in our view.
We’ll likely have some further sells come Monday, but in the meantime, we’ve updated and added to our list of stops.
SUGGESTED STOPS
Bandwidth (BAND) near 119
Big Lots (BIG) near 34.5
Biohaven Pharm. (BHVN) near 66
Carrier Global (CARR) near 22
CrowdStrike (CRWD) near 94
Datadog (DDOG) near 77
Fastly (FSLY) near 69
Immunomedics (IMMU) near 34.5
Inphi (IPHI) near 110
LGI Homes (LGIH) near 89
Lululemon (LULU) near 295
Marvell Technology (MRVL) near 33
Mersana Therapeutics (MRSN) near 19.9
Nuance Communications (NUAN) near 23.5
Nu Skin (NUS) near 42
Nvidia (NVDA) near 360
Pan American Silver (PAAS) near 29
Pelaton (PTON) near 52.5
Restoration Hardware (RH) near 240
Roku (ROKU) near 135
Seattle Genetics (SGEN) near 160
Star Surgical (STAA) near 51
Teladoc (TDOC) near 167
Tesla (TSLA) near 1130
Thor Industries (THO) near 95
Ultragenyx (RARE) near 75
Zoom Video (ZM) near 220
Zscaler (ZS) near 100