There’s been a lot of movement in recent days in the broad market, the major indexes and various sectors, so let’s get right to our thoughts.
First, Tuesday’s big decline (the worst the market had suffered in months) by itself doesn’t bother us—in fact, bull markets often have short, sharp, scary drops that shake out investors. To this point, the intermediate-term uptrend is still pointed up, though it’s close.
However, when Tuesday’s big drop is combined with the various breadth-related yellow flags we’ve been writing about in recent weeks, as well as the breakdown in some key sectors (like financial stocks), we think it’s best to trim your sails until we see the buyers return, whether that’s in two days, two weeks or two months.
That said, longer-term, we remain very optimistic this is a bull market because (a) the long-term trend is up, (b) many studies we’ve performed indicate higher prices are likely in the months ahead, and (c) a ton of growth-oriented stocks are still holding up well and the Nasdaq is the strongest of all the indexes.
What does it all mean? Right now, you should take things on a stock-by-stock basis, ditching names that trip your loss limits or stops. On the buy side, we’d cut back on new buying for the moment, possibly keeping new positions smaller than normal; that should help build up a little cash. We’re likely to knock our Market Monitor down another notch or two come Monday if things stay where they are now.
To be clear, it wouldn’t take much for the bulls to re-take control—a couple of good days for the major indexes (especially the lagging small- and mid-cap areas) and some leading stocks could do the trick. And we definitely think you should hold on to your strong performers, of which there are many! But given the breakdown in many sectors, the lagging breadth and Tuesday’s shot across the bow, you should step carefully for the moment.
Lastly, we know many investors are focused on the happenings in Washington, D.C., but remember to take your cues from the market itself. There’s no telling whether an up or down vote would help or hurt the market, and besides, it’s probably going to have a short-term impact if anything. Thus, stay tuned to the market’s action.
BUY IDEAS
Applied Optoelectronics (AAOI 55) has been very impressive, pulling back normally after a gigantic run, finding support near its 25-day, and today, challenging new high ground! It’s volatile and extended, but keep an eye on it—a small position here or (preferably) on dips could work. But use a loose stop of 15% or more if you buy it, because AAOI moves around a few percent every day.
Cope Holdings (CPA 110) surged ahead in February and has, for the most part, been consolidating since. The pullback this week found support at the 25-day line and there’s been no abnormal selling volume. Buying a little here with a tight percentage stop near 102 is an idea.
Royal Caribbean (RCL 99) didn’t budge at all this week—in fact, it popped to new price highs on Wednesday. We’re not opposed to buying a few shares here or on dips and using a tight stop near 93, which is just below the 50-day line.
Square (SQ 17) looks like a name to keep tabs on, as shares are a month into a consolidation following its big earnings gap. You could nibble here (with a stop near 15.3), or wait for a push above 17.5 (stop near 16), which would likely coincide with a resumption of the market’s uptrend.
Wix.com (WIX 67) has pulled back to its 25-day line, the second time its fallen to that support level since gapping on earnings in mid-February. We’re OK nibbling here and using a stop around 60.
SELL IDEAS
The combination of us tightening our stops in recent weeks and the market’s weakness on Tuesday has led to a bunch of sells this week. Alaska Air (ALK 95), Alcoa (AA 34), DeVry (DV 33), Essent Group (ESNT 35), Hancock Holding (HBHC 44), Morgan Stanley (MS 43), Quanta Services (PWR 37), Seagate Technology (STX 46), SVB Financial (SIVB 180), Texas Capital Bancshares (TCBI 80), TTM Technologies (TTMI 16) and Western Digital (WDC 80) are all sells this week.
SUGGESTED STOPS
Adient (ADNT 68) near 66
ASML Holding (ASML 133) near 124
Applied Materials (AMAT 39) near 36.5
Autohome (ATHM 32) near 30
Bluebird Bio (BLUE 88) near 79
Cavium (CAVM 72) near 68
Charles Schwab (SCHW 40) near 39.5
Clovis Oncology (CLVS 70) near 61
Conduent (CNDT 16) near 15.2
Dave & Buster’s (PLAY 61) near 57
Deere (DE 110) near 106.5
Exelixis (EXEL 21) near 19.5
Glaukos (GKOS 50) near 44
Grand Canyon Education (LOPE 69) near 62
Incyte Corp. (INCY 140) near 128
Marriott Vacations (VAC 99) near 89
Micron Technology (MU 29) near 25
Netflix (NFLX 143) near 135
Olin Corp. (OLN 33) near 30
ON Semiconductor (ON 15) near 14.5
Pacira Pharmaceuticals (PCRX 47) near 43.9
Royal Caribbean (RCL 99) near 93
Sage Therapeutics (SAGE 65) near 59
Sanmina (SANM 40) near 38
Square (SQ 17) near 15.8
Take-Two Interactive (TTWO 59) near 56
United Rentals (URI 122) near 116
Univar (UNVR 30) near 29.9