To say it’s been a crazy past two or three weeks would be an understatement, especially when you include the wild post-election action. So let’s get right to our thoughts.
First and foremost, be sure not to confuse movement with progress. Despite all the volatility, not that much has changed from a big-picture point of view—the intermediate-term trend is still neutral-to-negative. In fact, looking at the charts of the major indexes, none has made any progress since early October, hammering home the point.
That’s not to say we haven’t seen some encouraging action among some indexes; small-caps, for instance, have been extremely impressive. But net-net, the market is still in a three-month trading range.
As for the broad market, we’re seeing lots of convulsions and rotation. Many growth stocks and yield-oriented stocks have been hammered, while “old world” stocks and biotechs have come to life. While some of the big-volume moves from the latter two sectors could provide some buying opportunities (we’d expect many to show up in Top Ten in the weeks ahead), the broad market is extremely divergent right now (lots of new highs and new lows), which isn’t usually a great thing for the market.
Also, we just want to note something we wrote a few weeks ago: Historically, these post-election reactions often last one to five days. Today is day three, so we’d expect things to settle out early next week.
We’re keeping our Market Monitor at a level 4—we haven’t seen enough strength to bump it up, and we haven’t seen enough weakness to bump it down. We advise remaining cautious, letting the market find its footing and new leadership provide entry points. You can do some nibbling, of course, especially in some of the recent big-volume breakouts, but it’s unlikely any big money will be made until the choppy market action changes.
We’re not overly negative on the future. If the major indexes can break out on the upside in the days ahead, a sustained run could easily ensue. But, as usual, it’s best to wait for the market to show its hand before making your move.
BUY IDEAS
If you’re aiming to do some buying, focus on stocks showing big-volume upmoves recently, aiming to buy on dips.
Arch Coal (ARCH 83) exploded higher on gigantic volume post-election after a nice pullback. Dips to 82 or below would be tempting, with a stop in the 75 area.
Arista Networks (ANET 85) is a rare growth stock that’s holding up well, probably because the stock reacted well to earnings last week. It still has resistance near 88, so you could either wait for a breakout to nibble, or try start a position here with a tight stop around 80.5.
Autodesk (ADSK 73) is another growth-ish stock that’s been trying to push to new highs in recent days. It’s not quite freewheeling, but we like the overall action and are OK with a small buy here or on dips of a point or so, with a stop near 68.5.
Quanta Power (PWR 31) had some gyrations on earnings earlier this month, but has soared to new recovery highs this week. A dip below 30.5 would offer an opportunity to nibble, with a stop near 28.5.
Steel Dynamics (STLD 32) is another old world stock that’s exploded to new highs on excellent volume this week. With STLD having gone straight up from 23 to 33 during the past month, we’d aim to buy on weakness toward 30, with a stop in the 27.5 to 28 range.
Zayo Group (ZAYO 33) is very strong—the stock hasn’t been below its 25-day line since mid-September, and it’s zoomed to new highs on good volume this week. Try to buy on dips below 33, with a stop near 30.5.
SELL IDEAS
First off, Nvidia (NVDA 84) had another big earnings gap today, which is great to see. But given the stock’s huge run and the iffy market, we’re not opposed to taking some partial profits around here, especially if you have a big profit. But definitely hold on to most of your shares until the stock itself rolls over.
As for outright sells, Adobe Systems (ADBE 103), Green Plains Energy (GPRE 23) and NetEase (NTES 223) all tripped their stops and are now sells.
And Alibaba (BABA 91), Ellie Mae (ELLI 96), Momo (MOMO 21) and Ulta Beauty (ULTA 237) have broken down and are also sells this week.
SUGGESTED STOPS
Aerie Pharmaceuticals (AERI 38) near 32.5
Applied Materials (AMAT 28) near 27.5
Arista Networks (ANET 85) near 80.5
Autodesk (ADSK 73) near 68.5
Cirrus Logic (CRUS 54) near 50.5
Copa Holdings (CPA 86) near 85
Domino’s Pizza (DPZ 160) near 156
Expedia (EXPE 123) near 118.5
Finisar (FNSR 30) near 27
HDFC Bank (HDB 69) near 68.5
ICU Medical (ICUI 145) near 135.5
Las Vegas Sands (LVS 58) near 55
Mastercard (MA 104) near 101
Micron Technology (MU 17) near 16
Netflix (NFLX 115) near 112
Nintendo (NTDOY 28) near 26.5
Nvidia (NVDA 84) near 70
Patterson-UTI Energy (PTEN 21) near 21
PayPal (PYPL 40) 38
PRA Health Sciences (PRAH 55) near 53
Quanta Services (PWR 31) near 28.5
RPC Inc. (RES 17) near 16
TD Ameritrade (AMTD 36) near 34
Williams Companies (WMB 29) near 27.5