The evidence for the overall market has continued to worsen this week—all the major indexes have sliced below their 50-day lines, which has turned the intermediate-term trend down for the first time since April. Moreover, the big-cap indexes are working on their fourth straight down week, with the S&P (fallen a max of 10.6% from its highs) and Nasdaq (down 12.7%) off double digits from their early-September peak.
Not surprisingly, the number of stocks hitting virgin turf has also slacked off—yesterday, for instance, just 13 names hit new highs on the Nasdaq, the lowest one-day figure since early April. Looking at the 15-day moving average of new highs, it’s now the lowest since early April.
Put these and some other pieces of evidence together and the message is simple: Right now, it’s hard to make (and keep) much money, so we continue to advise a cautious stance, with a good-sized cash position and being discerning on the buy side.
That said, we are actually seeing some legitimate positives in recent days. First off, the decline this week may finally be getting to investors—this week saw the largest outflow from equity funds and ETFs since early June (during a big shakeout in the market), and at a level that historically has come near some market lows.
Second, and more important, we’re actually seeing more resilient action among leading stocks now (with the indexes trending lower) than we picked up on for much of August (when the trend was up). Specifically, many of the “fresher” leaders have been mostly holding their own, though they’re getting tossed around on a day-to-day basis with the market.
Throw in the fact that the longer-term trend is up, and the odds still favor the market hitting higher highs down the road—this looks a lot like a relatively normal correction/consolidation within an overall bull market. But given that we had such a huge five-month rally, it’s also likely that market probably needs more time to wear and scare out the weak hands, and for big investors to reposition their portfolios.
Long story short, you should remain cautious overall (we’re likely to leave our Market Monitor at a level 5 come Monday’s issue), but it’s fine to pick up small positions in some potential new leaders here and there, especially as many are trying to set up ahead of the next market upturn.
SUGGESTED BUYS
Qualcomm (QCOM) has taken its lumps with everything else during the past three weeks, but the pullback looks reasonable and it’s now testing its 50-day line for the first time since breaking out in late July. We’re fine taking a stab at it here, with a relatively tight stop in the 103-105 area.
Roku (ROKU) boomed to new highs on gigantic volume on Monday, and while it’s still getting tossed around by the market (pulled back the past couple of days), we think it’s a decent entry around here—consider starting small with a stop under the 50-day line (now near 160 and rising).
Tupperware (TUP) looks like a strong turnaround situation, and after a huge breakout (at 16) and rally (to 27), shares are finally pulling in. A shakeout to 22 or so would be tempting as the 25-day line (now near 21 and rising quickly) catches up.
SUGGESTED SELLS
We have six stocks that tripped their stops this week and all will be sold:
Arconic (ARNC)
Farfetch (FTCH)
Kinross Gold (KGC)
Kirkland Lake (KL)
Pacira Pharm (PCRX)
Salesforce.com (CRM)
We also had our loss limit tripped in Kingsoft Cloud (KC) after a share offering drove the stock to new lows.
As always, we could have further sells come Monday depending on the action of the market.
SUGGESTED STOPS
Agnico Eagle Mines (AEM) near 73
Alibaba (BABA) near 261
Boston Beer (SAM) near 800
Builders Firstsource (BLDR) near 27.5
Carrier Global (CARR) near 27.9
Chart Industries (GTLS) near 62.5
Digital Turbine (APPS) near 24
DouYu (DOYU) near 13.5
Elastic (ESTC) near 95
Exelixis (EXEL) near 22
Floor & Décor (FND) near 67.5
Freeport McMoRan (FCX) near 14.2
Freshpet (FRPT) near 98
Innovative Indus. Prop. (IIPR) near 112
Nvidia (NVDA) near 450
Peloton (PTON) near 78
Plug Power (PLUG) near 10.8
Qualcomm (QCOM) near 104
Quanta Services (PWR) near 47
Roku (ROKU) near 152
Sea Ltd. (SE) near 134
Taiwan Semi (TSM) near 75
Whirlpool (WHR) near 165