First off, let’s start with two housekeeping notes. If you use Twitter, you can follow me @MikeCintolo—I usually Tweet a couple of times during the day on stuff I’m looking at. And be sure to check our home page www.cabotwealth.com every weekend for our Cabot Weekly Review—a brief video on our market view, leading stocks and various setups we see. It’s free!
The market has acted well since its Monday morning shakeout—that dip pushed the S&P 500 and other indexes below their 50-day lines, and even had the S&P 600 SmallCap kissing 16 week lows, but buyers stepped in and have generally driven prices higher since.
Obviously, the rebound is good to see, and growth stocks and other “risk-on” areas taking leadership is a plus. That said, we’re not quite ready to declare the market’s March correction to be over (most indexes peaked on March 1).
Part of that is because, while the Nasdaq is testing new high ground, all other indexes are lagging. In fact, four of the five indexes we track are less than 1% above their 50-day lines, so it’s hard to say the intermediate-term trend is firmly up right now.
We’ve also seen a further thinning out of the advance. When the Nasdaq first tagged the 5,900 level on March 1, there were 309 stocks hitting new highs on the Nasdaq. When the index returned to that level on March 16 (before the big reversal), 188 stocks hit new highs. Yesterday, as the Nasdaq again poked above 5,900, stocks hitting new highs totaled 104.
To be clear, this isn’t necessarily an ominous sign—these “divergences” can take care of themselves if the uptrend reasserts itself. But for now it’s worth knowing that fewer stocks are participating.
All told, then, there remain a couple of yellow flags we think are worth respecting. But we’re certainly not negative on the market, and the action since Monday’s shakeout has been encouraging. Right now, we still favor holding some cash on the sideline, but you should be holding your top performers and picking up shares of new leaders as they emerge.
BUY IDEAS
Cavium (CAVM 71) began to get going in early March before the market pulled it in a bit, but the stock is still holding its 25-day line, so damage has been contained. Buoyant earnings estimates are a plus, too. You could buy some around here with a stop near 68.
Incyte (INCY 136) has had a good run in recent months, but the latest pullback looks intriguing—shares are a bit below their 25-day line, but the 50-day (at 131 and rising) is coming up quickly. You could buy some here with a stop near 128, or you could wait for a resumption of the uptrend, buying above 142 or so, with a stop near 131.
Homebuilders continue to act well, taking the market’s recent wobbles in stride. Pulte Group (PHM 24) has traded tightly during the past couple of weeks, and while there’s a little resistance around 24, we think you can buy some here or on dips below 23.5, with a stop around 22.2.
Sanmina (SANM 41) has built a tight structure during the past two months, hovering between 38.5 and 41 or so. You could start small here with a stop near 38, or simply wait for the stock to get above 41.5 to buy, and use a stop near 39.
Square (SQ 17) is starting to quiet down after a wild few days; the bigger picture chart shows a reasonable consolidation after a nice uptrend and huge earnings gap in late February. A big-volume move above 17.7 or so would be tempting, and you could use a stop in the 16.3 area if you buy.
SELL IDEAS
The only outright sell we have today is Deere (DE 109), which tripped its stop earlier this week.
We also think you can consider taking partial profits in Shopify (SHOP 68), which remains in a great uptrend, but has suffered a couple of huge-volume selling days recently. Selling one-third and holding the rest makes sense.
SUGGESTED STOPS
Adient (ADNT 72) near 66.5
ASML Holding (ASML 133) near 125
Applied Materials (AMAT 39) near 36.5
Autohome (ATHM 31) near 30.5
Bluebird Bio (BLUE 92) near 80.5
Builders FirstSource (BLDR 15) near 13.8
Cavium (CAVM 71) near 68
Clovis Oncology (CLVS 62) near 61
Conduent (CNDT 17) near 15.6
Dave & Buster’s (PLAY 61) near 58
Exelixis (EXEL 22) near 19.8
Glaukos (GKOS 51) near 45
Grand Canyon Education (LOPE 72) near 63.5
HubSpot (HUBS 60) near 57
Incyte Corp. (INCY 136) near 131
Leucadia (LUK 26) near 25
Marriott Vacations (VAC 100) near 90.5
Micron Technology (MU 29) near 25.5
NetEase (NTES 283) near 276
Netflix (NFLX 148) near 137
Olin Corp. (OLN 33) near 30.5
ON Semiconductor (ON 15) near 14.5
Pacira Pharmaceuticals (PCRX 45) near 43.9
Pulte Group (PHM 24) 22.2
Royal Caribbean (RCL 99) near 94
Sage Therapeutics (SAGE 68) near 60.5
Sanmina (SANM 41) near 39
Skyworks (SWKS 98) near 92
Square (SQ 17) near 16.3
Take-Two Interactive (TTWO 59) near 56.5