This week is shaping up to be the mirror image of last week, as stocks have soared from the get-go, with the major indexes quickly surging back toward the highs of their 10-week ranges. As of this morning, the S&P is up north of 6% on the week, with the Nasdaq up nearly 8% and the small- and mid-cap indexes up in the 6% range, too.
Simply put: We’re encouraged by the action, and not just because we’ve seen a couple of powerful up days post-election. Many leading stocks, which took the brunt of the selling during the past three weeks, have snapped back to life. The number of stocks hitting new highs has expanded quickly. And we’ve also seen some rare power that bodes well down the road—according to Ryan Detrick of LPL Financial, we’ve seen four straight 1%-plus gains in the S&P 500 just three other times since at least 1970, and all led to mid-20% gains in the market looking out a year.
Beyond just this week, of course, is the bigger picture—the past 10 weeks, while tedious, have looked like a normal consolidation after the huge, five-month March-August market ramp. And after two tough corrections (10% in September, 8% in October), it’s possible there’s been enough pain and frustration to set the stage for the next up leg.
So is it full steam ahead? Not quite yet. As we wrote above, the indexes are mostly near the top of their two-plus month ranges—a good sign, but it’s hard to conclude the intermediate-term trend is decisively up. (We’d call it neutral-to-positive right now.) And it’s a similar story for many leaders, as the snapback this week is good to see but has also “only” brought many back up to where they were three weeks ago.
Put it all together, and this week has the potential to be a decisive one, but we still need to verify that going forward. In terms of what to do, yes, we think you can extend your line, but do so in a step-by-step process—if this really is a kickoff, then it will last months, not days, so some buying now followed by more buying if you develop profits makes sense. We’re likely to move our Market Monitor back up a notch or two to reflect the evidence this week.
SUGGESTED BUYS
Exact Sciences (EXAS) has seen a couple of huge buying waves since late September, including one after earnings a few trading days ago. Now it’s settled back a bit as volume dries up. It might need a bit more time (the 25-day line is at 113 and rising quickly), but we’re OK starting a position here if you’re not in with a loose (15%-ish) loss limit. The next big move seems up.
Freshpet (FRPT) rarely makes headlines, but it’s a relatively consistent performer over time. Shares dipped to their 50-day line during the recent market dip, but after earnings has surged to new highs on a string of solid gains. Dips into the low 130s would be tempting, with a stop around 115.
Roku (ROKU) is very volatile, so it’s anyone’s guess whether its modest earnings upmove this morning holds. But overall, the stock’s recent dip was its first to its 10-week line after a nice breakout from a year-long base in September. We think any dips in here will be buyable, with a stop near 200.
Zendesk (ZEN) certainly acts like a leader, with a mild-volume dip to its 10-week line, a positive reaction to earnings during the worst of the market’s selloff and then surging to new highs on big volume as the market has rallied. Dips of a few points would be tempting, with a stop around 105.
SUGGESTED SELLS
After a wave of sells in recent weeks, we have none today—as always, we could prune some names come Monday depending on what things look like.
SUGGESTED STOPS
Abercrombie (ANF) near 14.2
Alibaba (BABA) near 283
Brinker Int’l (EAT) near 41.5
Carrier Global (CARR) near 32
Freeport McMoRan (FCX) near 16.2
Freshpet (FRPT) near 115
Gap (GPS) near 18
Natera (NTRA) near 66
Peloton (PTON) near 108
Qualcomm (QCOM) near 128
Quanta Services (PWR) near 57
Sea Ltd. (SE) near 159
Seres Therapeutics (MCRB) near 28
Square (SQ) near 161
STMicroelectronics (STM) near 31
Taiwan Semi (TSM) near 83
Target (TGT) near 152