Quick note: Because Monday is Memorial Day, your next issue of Cabot Top Ten Trader will be emailed to you Tuesday (May 30) after the market close. Have a great long weekend!
As for the market, last week, we said that Wednesday’s huge distribution day was a shot across the market’s bow—while it didn’t break the overall bull market, we thought the next few days (or couple of weeks) would tell us whether that was more of a shakeout or the start of a topping phase.
After that, of course, stocks picked up steam, with the Nasdaq and S&P 500 rising six days in a row and setting new highs, with many growth (and other) stocks snapping right back, too. Thus, we’re basically back to where we were two weeks ago, likely bumping up our Market Monitor a bit, remaining heavily invested and looking for new buys as opportunities arise.
That’s not to say there aren’t still a few rain clouds swirling overhead. Three of the five major indexes we track (S&P 600, S&P 400 and NYSE Composite) are still in trading ranges. The number of stocks hitting new lows is a bit elevated, another sign that there are growing divergences out there. And we’re seeing some money flow into defensive areas (consumer staples, etc.), which could be the early signs of rotation.
We would keep those potential problems in mind, in part to remind you to keep your feet on the ground (try not to chase stocks that are sticking straight up in the air). But, overall, the two most important factors—the market’s longer-term trend and the action of leading stocks and indexes—are clearly positive, so we’re bullish.
BUY IDEAS
Chipotle Mexican Grill (CMG 482) has calmed down for the past few weeks but still looks like its turnaround is in force. You could buy a little around here with a stop around 465, or look to buy on a push above 495 (and use the same stop).
We’re seeing a lot of potential “pullback” buys if the market cools off a bit next week. CoStar Group (CSGP 259) is one—after a huge post-earnings move, any dip toward the 25-day line (now at 247 but rising quickly) would probably be buyable, with a stop in the mid 230s.
LendingTree (TREE 155) is also a potential pullback buy—after surging from 117 in mid-April to 160 early last week, the stock has quieted down in the mid 160s. You could nibble here if you really want in, but again, a dip toward the rising 25-day line (now at 148) would be a better entry.
Restoration Hardware (RH 58) had a big wobble two weeks ago, but has tightened up nicely since then, even during last week’s market shakeout. You could buy a little around here (or on dips of a point or two) with a stop near 52 if you don’t own any, with the idea of adding to your position on any decisive push above 60.
Tesla (TSLA 322) soared to new highs in early April but has basically been marking time since then, gyrating between 290 and 325. Our thought is simple: A decisive push above 325 in the days ahead would be buyable and likely indicate the resumption of the overall uptrend. You can use a stop around 303.
SELL IDEAS
First off, don’t forget to book some partial profits these days when most stocks are humming—anything that is up 15% to 20% or more, has been running for a few months and has recently spiked is a good candidate. The goal is to sell one-third of your shares (or thereabouts) and then try to hold the rest for a larger, longer-term profit.
As for outright sells, we have five, including Dycom (DY 84), HP Inc. (HPQ 18), Huntsman (HUN 25) and Momo (MOMO 39). We’re also selling Darden Restaurants (DRI 88), which looks fine, but suffered some big-volume selling recently and isn’t as strong as some other stocks.
SUGGESTED STOPS
ASML Holding (ASML 134) near 130
Applied Materials (AMAT 45) near 41
Arista Networks (ANET 147) near 134.5
Atlassian (TEAM 36) near 33
Chipotle Mexican Grill (CMG 482) near 465
Coherent (COHR 247) near 215
Dave & Buster’s (PLAY 66) near 62.5
Exact Sciences (EXAS 33) near 28
FMC Corp. (FMC 75) near 70
Grand Canyon Education (LOPE 77) near 73
GrubHub (GRUB 43) near 39.5
HubSpot (HUBS 71) near 65
Jabil Circuit (JBL 30) near 28
KB Homes (KBH 21) near 20
Lam Research (LRCX 154) near 138
LendingTree (TREE 155) near 135
Marriott Vacations (VAC 117) near 106
Melco Crown (MLCO 22) near 20.5
Micron Technology (MU 29) near 27.5
National Beverage (FIZZ 94) near 83
Paycom Software (PAYC 66) near 60.5
Skyworks (SWKS 106) near 100
Square (SQ 23) near 19
Summit Materials (SUM 27) near 26
Take-Two Interactive (TTWO 77) near 67
TAL Education (TAL 120) near 113
Western Digital (WDC 89) near 84
Wix.com (WIX 77) near 71
XPO Logistics (XPO 53) near 49