We remain mostly bullish on the market because the evidence remains mostly bullish. All major indexes are above their 50-day lines, the Nasdaq has shot ahead to new highs and many Top Ten stocks are acting well—strong stocks are generally reacting well to earnings and following through on the upside.
That said, there are a couple of things we’d like to see before we get fully bullish.
First and foremost, we need to see the indexes hit new highs. Except for the Nasdaq, the other major indexes we track (S&P 500, NYSE Composite, S&P 400 MidCap and S&P 600 SmallCap) are all still stuck in their two-month trading ranges. And three of those four indexes are basically sitting on their 50-day lines. That’s not bearish, but bull markets hit new highs, so we’d like to see these indexes do that in the days or weeks ahead.
Second, we’ve recently seen a good-sized expansion in the number of stocks hitting new lows. Most of that is due to the selloff in energy stocks, but the fact is the market usually does better when everything is rowing in a similar direction. If the new lows remain elevated, it would raise the risk of a more severe market retreat going forward.
Yet, as we wrote above, most of the evidence is bullish, including the bullish longer-term trend, some positive longer-term studies, the action of leading growth stocks and the fact that the indexes haven’t been willing to give up much of their post-election advance in recent weeks, despite a barrage of negative headlines.
Overall, then, we’re likely to leave our Market Monitor at a level 8 (in bullish territory), which means you should be heavily invested. A push to new highs in the other indexes would likely have us growing even more bullish, while a meaningful dip from here would have us backing off a bit.
BUY IDEAS
Restoration Hardware (RH 57) has been acting extremely well in recent weeks, with a big rally in March and early April, a quiet period of calmness as the stock consolidated into its 25-day line, and now a huge surge of buying as the company announced a mammoth share buyback program. Keep a lookout for a dip of a couple of points to buy a few shares.
Square (SQ 20) reacted well to earnings, continuing its uptrend in recent months and registering new price and relative performance peaks in the process. There should be good support in the 17 to 18 area, so you can buy some around here with a stop in the mid-17s if you don’t own any.
Universal Display (OLED 112) is going bananas today after earnings last night crushed estimates. Yes, it’s up a lot, but the stock looks relatively early stage, having initially broken out in February, then building a tight base for two months, and now exploding higher. You can buy a small position here with a loose (percentage) stop in the 95 area.
XPO Logistics (XPO 54) built a base-on-base pattern during the past five months, but now appears to be getting going—the stock reacted well to earnings yesterday and is following through on the upside today (and is on track for new closing highs). You could buy some here with a stop near 48.5.
SELL IDEAS
With many stocks performing well, don’t forget to book partial profits in some stocks on the way up. There are a ton of possibilities, such as Copa Holdings (CPA 122), iRobot (IRBT 86), Paycom (PAYC 65) or TAL Education (TAL 120). You could sell some of any of these and trail a stop for the rest of your shares.
As for outright sells, we have five today, all of which either tripped their stops or otherwise broke down through support: Cotvity (COTV 38), Louisiana Pacific (LPX 24), Qorvo (QRVO 66), TIM Participaceos (TSU 16) and Wright Medical (WMGI 28.)
SUGGESTED STOPS
ASML Holding (ASML 135) near 128
Applied Materials (AMAT 42) near 38.5
Arista Networks (ANET 141) near 128
Builders FirstSource (BLDR 16) near 14.9
Coherent (COHR 220) near 188
Criteo (CRTO 53) near 50
Dave & Buster’s (PLAY 66) near 60
Grand Canyon Education (LOPE 76) near 69.5
HubSpot (HUBS 70) near 63
Huntsman (HUN 25) near 23.5
KB Homes (KBH 20) near 19.3
Lam Research (LRCX 149) near 133
LendingTree (TREE 146) near 125
Madison Square Garden (MSG 200) near 195
Marriott Vacations (VAC 120) near 101
Micron Technology (MU 28) near 26.4
Paycom Software (PAYC 65) near 58
Portola Pharmaceuticals (PTLA 39) near 37
PRA Health Sciences (PRAH 66) near 62.5
Sage Therapeutics (SAGE 69) near 67
Skyworks (SWKS 101) near 97.5
Square (SQ 20) near 17.4
Symantec (SYMC 32) near 30
Synopsys (SNPS 74) near 71
Take-Two Interactive (TTWO 64) near 59.5
Teledoc (TDOC 24) near 23
Western Digital (WDC 90) near 82
Wix.com (WIX 74) near 70
XPO Logistics (XPO 54) near 48