What started out as a normal, controlled pullback two weeks ago has morphed into another serious correction in the market, with the major indexes falling sharply this week—as of this morning, all of the major indexes we track are off more than 4% on the week, which has wiped out the nascent intermediate-term green light. At this point, the S&P 500 and Nasdaq are both back about 8% to 9% from their September peaks.
Leading stocks aren’t offering much comfort, either—most have been skidding persistently for the past two to three weeks, with nearly all of the good-looking breakouts seen in late September/early October failing along with the market.
To be fair, when you step back, the action isn’t all bad. Following the huge March-through-August run, we wrote that the market likely needed time to digest its gains, and the down, up and down again action since then is probably part of that process. We’re now nine weeks into it, and we’ll see how it goes.
Of course, many will simply say the recent action is due to hedging and positioning ahead of next week’s election. And … they could be right. We commented recently that we can’t remember seeing so many stocks fall so much (15% to 20%) for so long (two to three weeks) on minuscule volume. If the buyers can step up, there might not be a ton of overhead supply (potential sellers) to chew through.
However, you could have said the same thing a week or two ago, too, and the buyers still haven’t stepped up. In other words, we wouldn’t make excuses for the market, and even if you do, we need to see at least a couple of big-volume buying days in the market and leading stocks to show that big investors are stepping in.
All in all, we’re not locked in our storm cellar, but we have grown more cautious as things weaken. We knocked our Market Monitor down a notch recently, and we’re likely to pull down again this week given the action.
SUGGESTED BUYS
Five Below (FIVE) isn’t tearing up the charts, but its quiet consolidation the past six weeks stands in contrast to the action seen across the market. If the indexes really tank, all bets are off, but we think the stock wants higher if the market can hold up. You could nibble here with a stop near 120, with the idea of adding more on a decisive move north of 141.
NovoCure (NVCR) has slipped with everything else in recent days, but the decline was reasonable vs. the recent advance and shares found a little support after earnings. More fidgety action is likely, but we still think the odds favor this pullback finding support somewhere in here. We’re OK starting a position if you’re not yet in, albeit with a liberal stop in the 105 area.
Zendesk (ZEN) pulled back normally since the recent market top, but held north of its 50-day line (around 102) and popped nicely on earnings this morning. This isn’t the environment to chase earnings gaps, but a dip of two or three points could be tempting, with a stop near the 50-day line.
SUGGESTED SELLS
We have a bunch of sells this week from various stocks that tripped or otherwise broke their intermediate-term uptrend. As always, if you want to hold with a tight stop or sell some/hold some, that’s up to you, but to us, these names seem vulnerable in the current environment.
AGCO Corp. (AGCO)
Agnico Eagle Mines (AEM)
Beyond Meat (BYND)
Chipotle Mexican Grill (CMG)
CrowdStrike (CRWD)
Dexcom (DXCM)
Digital Turbine (APPS)
Marvell Tech (MRVL)
Penn National (PENN)
Synnex (SNX)
Teck Resources (TECK)
TG Therapeutics (TGTX)
TopBuild (BLD)
Twitter (TWTR)
United Rentals (URI)
SUGGESTED STOPS
Abercrombie (ANF) near 13.8
Alibaba (BABA) near 283
Brinker Int’l (EAT) near 40.5
Carrier Global (CARR) near 30.9
Carvana (CVNA) near 187
CrowdStrike (CRWD) near 125
Datadog (DDOG) near 93
Floor & Décor (FND) near 74
Freeport McMoRan (FCX) near 15.8
Freshpet (FRPT) near 110
Gap (GPS) near 17.5
Natera (NTRA) near 64.5
Nvidia (NVDA) near 495
Peloton (PTON) near 108
Qualcomm (QCOM) near 117
Quanta Services (PWR) near 55
Sea Ltd. (SE) near 153
Seres Therapeutics (MCRB) near 26.5
Square (SQ) near 152
STMicroelectronics (STM) near 30
Taiwan Semi (TSM) near 82
Target (TGT) near 150
Tesla (TSLA) near 380