The major indexes have been relatively quiet this week, with most up a small amount (less than 1%). But the noteworthy action occurred among leading growth stocks, many of which saw follow-on selling from last week, causing more than a few breakdowns and lots of iffy charts.
Given the huge, prolonged runs in these leaders, the distribution of late and breakdowns of intermediate-term support raises the odds that there will be further damage and/or a longer rest phase going forward. (Obviously, there are no sure things, and if these stocks spike higher, we’ll notice, but the market is an odds game.)
That said, we don’t advise selling wholesale, either. First off, while we have seen some intermediate-term abnormal action among leaders, the big picture remains encouraging—we think most are digesting gains after big runs, as opposed to having reached major (six- to 12-month) tops.
And second, the rest of the market looks good—the trends of the major indexes are up, and we’re seeing some new leadership emerge on earnings of late. Granted, things are thinning out (while the Nasdaq tested its highs from last week yesterday, the number of stocks hitting new highs was less than half of last week’s total), but overall, most evidence is still pointed in the right direction.
In other words, it’s still a bull market, but for the near-term, we’ve turned a bit cautious as we see how the recent rotation/selling plays out. For the most part, we think taking things on a stock-by-stock basis makes sense—if something you own acts fine, hang on, but we wouldn’t ignore or be buying into huge bouts of selling in stocks that have doubled or tripled in recent months.
Overall, we’re not dramatically changing our stance—our Market Monitor will likely remain at a 6—but if you own some ragged names, it’s best to take some action, be it via sales, partial profits or simply tightening stops.
SUGGESTED BUYS
While growth stocks have turned iffy, the “good” news is that you can spot resilience more easily now. Bandwidth (BAND) is one example—while it’s come down, volume has been reasonable, and shares are still holding their 25-day line. Yes, it could keep falling, but starting a position here with a stop under the 50-day line (now around 133) seems like a decent risk-reward situation.
Precious metal stocks are notoriously fidgety, and this week was no exception, with a dip in gold and silver prices causing the group to get hit. However, if you’re game, we’re OK taking a swing at something like Pan American Silver (PAAS) around here but using a tight stop under its 50-day line (around 31.5)—risking two or three points but the upside could be much bigger than that if the uptrend resumes.
Peloton (PTON) has fallen off with the leaders, but it’s been giving ground grudgingly and yesterday, on some “bad” news surrounding Apple launching a workout app, shares found support above their 50-day line on a nice pickup in volume. We’re not saying it’s completely out of the woods, but if you want to start small here with a stop a bit under 60, we’re OK with it.
Lastly, Penn National Gaming (PENN) has reacted very well to earnings this week, popping to new highs and leaving behind consolidation in the 30 to 37 area behind. We wouldn’t chase it here, but keep an eye on it—any pullback of two or three points in the near-term could set up a nice entry point.
SUGGESTED SELLS
ANGI Homeservices (ANGI)
GDS Holdings (GDS)—just kissed our stop before a modest bounce. Can use a stop near 77 if you still own some
Splunk (SPLK)
XP Inc. (XP)
Zoom Video (ZM)—nicked our stop to the penny! If you still own some, can use a stop just under 230
SUGGESTED STOPS
Alibaba (BABA) near 238
Bandwidth (BAND) near 130
Big Lots (BIG) near 39.5
Bill.com (BILL) near 82
Carrier Global (CARR) near 25
Coupa Software (COUP) near 272
Immunomedics (IMMU) near 38
Invitae (NVTA) near 28
LGI Homes (LGIH) near 97
Lululemon (LULU) near 310
Marvell Technology (MRVL) near 34
Nu Skin (NUS) near 43
Nvidia (NVDA) near 390
Pacira Pharm (PCRX) near 52
Pan American Silver (PAAS) near 31.5
Peloton (PTON) near 57
Plug Power (PLUG) near 8.8
Redfin (RDFN) near 38
Roku (ROKU) near 139
Sea Ltd. (SE) near 115
Tesla (TSLA) near 1260
Thor Industries (THO) near 103.5
Trade Desk (TTD) near 425
Ultragenyx (RARE) near 78.5
Zscaler (ZS) near 109