It’s been a very good week for the major indexes, with all of them up more than 2%, but in a change of pace, it’s been a sour week for the leading stocks. Last week saw a bunch of positive earnings reactions, but this week, we’ve seen a swarm of selling on “good” news in some of the market’s hottest stocks.
Stepping back, most of the evidence remains bullish, so we remain mostly bullish—the intermediate-term (and for that matter, longer-term) trend of the major indexes and most stocks remains up, while the number of stocks hitting new highs has perked up again.
However, for the first time, the rotation this week has brought with it what we would deem some intermediate-term abnormal action, such as breaks of key support or very sharp/big-volume declines straight off the top. In some cases, this has come after a few weeks of meandering and/or very low-volume rallies to new highs (after a big run, such action can be a yellow flag).
Now, to be fair, we have seen some fresh leadership get going (like Qualcomm, which was this week’s Top Pick), and those names have escaped the selling. Plus, it certainly wouldn’t shock us if many of the leaders that have taken hits find support and ramp up again.
Instead, our main view isn’t a broad call on the overall environment, but simply that things are getting trickier—many of the names that have had huge runs are meeting with distribution (some more harsh than others). Thus, for those stocks, we’d be a bit more aggressive in either selling, raising stops or taking partial profits.
We also wouldn’t be in a rush to link the iffy action among a growing number of leading growth titles with the rest of the market, giving your strong, profitable stocks a chance to advance and look for entries on names that are earlier in their advances.
SUGGESTED BUYS
Arconic (ARNC) has benefited from the rotation out of the hot work-from-home stocks and into cyclical names, with shares bounding off their 50-day line
Homebuilders remain strong, but some are finally pulling in a bit. LGI Homes (LGIH), which looks like a leader in the sector, has dipped to its 25-day line this morning; it could come in a bit more, but we’re OK taking a swing at it below 100, with a stop just below the century mark.
Pacira Pharm. (PCRX) had a good-looking breakout in late June, a tidy, low-volume pullback and now a multi-day, big-volume ramp higher. We’re OK taking a swing at it here
SUGGESTED SELLS
We’d be taking partial profits in GSX Techedu (GSX), which has gone vertical, though Chinese stocks are beginning to get hit.
Same thing with Sea Ltd. (SE)—if you just got in three weeks ago and have a solid gain, trim a few shares and trail a stop.
As for outright sells, today we have the following, though we could have more come Monday:
Datadog (DDOG)
Fastly (FSLY)
Owens & Minor (OMI)—tripped our loss limit
Seattle Genetics (SGEN)
Vapotherm (VAPO)
SUGGESTED STOPS
Alibaba (BABA) near 233
Bandwidth (BAND) near 129
Big Lots (BIG) near 37.5
Carrier Global (CARR) near 23.5
Coupa Software (COUP) near 272
CrowdStrike (CRWD) near 99
GDS Holdings (GDS) near 77
Immunomedics (IMMU) near 37.5
Inphi (IPHI) near 113
LGI Homes (LGIH) near 96
Lululemon (LULU) near 305
Marvell Technology (MRVL) near 34
Nu Skin (NUS) near 42.5
Nvidia (NVDA) near 380
Pacira Pharm (PCRX) near 49.5
Pan American Silver (PAAS) near 31
Pelaton (PTON) near 55
Plug Power (PLUG) near 8.4
Roku (ROKU) near 139
Splunk (SPLK) near 193
Star Surgical (STAA) near 53
Teladoc (TDOC) near 190
Tesla (TSLA) near 1210
Thor Industries (THO) near 102
Ultragenyx (RARE) near 76.5
Wix.com (WIX) near 262
XP Inc. (XP) near 43
Zoom Video (ZM) near 230
Zscaler (ZS) near 105