It’s been a mixed week for the major indexes—as of this morning, it’s been a bit of a reversal week, with the S&P 500 and Nasdaq lower by 0.5% to 1% or so, but the small- and mid-caps are up 0.5% to 1% or so. However, the real action came under the surface—the past few sessions have seen another vicious rotation out of extended growth stocks and into the broad market (financials up nearly 1% this week) and some beaten-down names (oil stocks up nearly 3%).
There was no specific catalyst, but (a) with earnings season revving up and the election coming in just a week and a half, it’s likely big investors are hedging and positioning to some extent, and (b), it’s not uncommon for growth stocks as a whole to hit some potholes after we see a rush of stocks hitting new highs.
Stepping back, there are still plenty of positives out there. First and foremost, the intermediate-term trend of the major indexes remains in good shape, with all indexes above their 50-day lines. And even among the leaders, it’s been mixed—while some names have fallen sharply, others are holding up just fine. Lastly, even among those that have taken hits, few have truly cracked key support and many have retreated on tame volume.
That doesn’t mean we’re overlooking the recent action—in fact, we’d bet that further near-term shenanigans are on the way given the event risks that are out there. On the buy side, then, picking your spots remains vital (especially if something has earnings approaching), and it’s important to honor stops and loss limits in case something falls out of bed.
However, the majority of the evidence is still pointed up, and we continue to generally take things on a stock-by-stock basis; there remain many stocks that are acting well, and we’re seeing a decent number of good-looking entry points as things pull in. Overall, then, we continue to lean bullish, but picking your spots and watching your risk (not jumping in right ahead of earnings, etc.) is key.
SUGGESTED BUYS
Brinker Int’l. (EAT) isn’t going to be your fastest horse, but after a big-volume ramp in August, the stock has basically moved straight sideways for a few weeks as the 50-day line (now near 44) has caught up. Earnings are due out next week (October 28), but we’re OK nibbling here and seeing what earnings come.
Gap Inc (GPS) has been stair-stepping higher for a while, and yesterday, after a bullish Investor Day, saw the stock surge on huge volume. Few stocks are running away on the upside, so a dip of a point or two would be tempting, with a stop around 17.5.
NovoCure (NVCR) has had a huge run, so further dips and a longer rest are possible. But after leaping to 140, the stock has pulled back sharply on mostly tame volume, approaching its 25-day line (now at 121 and rising). It’s higher risk, but we’re OK starting a small position here or on dips toward 120 and using a loose stop around 105—odds favor this pullback eventually giving way to higher prices.
Square (SQ) has retreated about 15 points from its highs on relatively tame volume, tagging its 25-day line yesterday. We can’t rule out further weakness, and earnings are coming relatively soon (November 5), but a drop of another few points (to the 170 to 173 range) would be tempting, with a stop in the mid/upper 150s.
SUGGESTED SELLS
We have five sells today, and as many names have weakened, we could have more come Monday:
iRhythm Technologies (IRTC)
Meritage (MTH)
Toll Brothers (TOL)
Tupperware (TUP)
Wingstop (WING)
SUGGESTED STOPS
AGCO Corp. (AGCO) near 75
Agnico Eagle Mines (AEM) near 76
Alibaba (BABA) near 280
Anaplan (PLAN) near 55.5
Builders Firstsource (BLDR) near 30.5
Carrier Global (CARR) near 30.5
Chipotle Mexican Grill (CMG) near 1250
CrowdStrike (CRWD) near 125
Datadog (DDOG) near 94
Digital Turbine (APPS) near 30
Elastic (ESTC) near 104
Floor & Décor (FND) near 73.5
Freeport McMoRan (FCX) near 15.5
Freshpet (FRPT) near 109
Innovative Indus. Prop. (IIPR) near 118
Mosaic (MOS) near 17.6
Natera (NTRA) near 64
Nvidia (NVDA) near 490
Peloton (PTON) near 108
Plug Power (PLUG) near 13.8
Qualcomm (QCOM) near 114
Quanta Services (PWR) near 52.5
Sea Ltd. (SE) near 152
Seres Therapeutics (MCRB) near 26
Taiwan Semi (TSM) near 82
Teck Resources (TECK) near 12.8
TG Therapeutics (TGTX) near 25.5