First we had the mid-May market shakeout, from which the market recovered in short order, hitting new highs a few days later. Then came the early-June selloff, which showed some abnormal action—some leading stocks cracked, and the rebound from there wasn’t impressive.
And now, this week especially, we’re seeing follow-on selling, extending the correction in the leading Nasdaq and growth stocks to three and a half weeks. Moreover, this week’s downturn has seen more leading stocks fall by the wayside, and most leading indexes are either at their 50-day moving averages (like the S&P 500) or a bit below (Nasdaq and S&P 600 SmallCap).
While those two paragraphs paint a bearish picture, it’s hardly doom and gloom out there. First off, even the Nasdaq, which has been under the most pressure, came into today just 4% off its high after a big run—hardly a crushing blow. A good number of growth stock leaders are still acting well, and we’ve seen some new leadership emerge in the past couple of Top Ten issues.
Thus, we still see more positive than negative evidence, though the gap has shrunk a lot during the past week. At this point, we still think the onus is on the bulls to step up after this three-and-a-half-week retreat. Until they do that in a decisive fashion, you should limit new buying to small positions and, of course, honor your stops for any stocks that are weakening. Depending on how the rest of today and Monday goes, we’ll likely move our Market Monitor down another notch.
Last but not least, while we can all get caught up in the day-to-day and week-to-week movements of the market and our stocks, keep in mind that this is a bull market—we haven’t seen any major abnormal action from the market or the institutional-quality leading stocks. Combined with some market studies (the market tends to do very well in the second half of the year after a solid first half, like we had in 2017), it’s important to keep your eyes open for new opportunities.
For now, though, we’d continue to play it a bit carefully and see if the bulls can make a stand.
BUY IDEAS
Bob Evans Farms (BOBE 71) is a mundane business but its recent moves look transformative, and we’re impressed with how the stock has tightened up since the start of June. You could nibble here with a tight stop around 66, and consider buying more if BOBE leaps above 73.
ILG Inc. (ILG 27) popped off its 50-day line in early June after some buyout rumors surfaced, and the stock has since tightened up nicely as its 50-day line approaches again. If you don’t own any, you could buy a little here with a stop near 25.5, and look to add more above 28.5.
RingCentral (RNG 36) has been running since the start of the year, which is a worry, but the stock hit a higher high in mid-June and a higher low this week, with little selling volume lately and with the 50-day line (now at 34.8) catching up. You could nibble here with a stop around 34, and look to add shares if the stock moves above 38 and the market resumes its uptrend.
WellCare (WCG 182) just broke out in early May, and has formed an ascending base, with three higher highs and three higher lows (all while riding its 25-day line) since mid-May. You could start a position here with a stop near 172, and look to add shares on a move above 185.
Zillow (Z 47) showed extreme relative strength in June, soaring to a new high in the middle of the month even as the Nasdaq’s bounce was meek. It’s since pulled back to its 25-day line, which looks reasonable so far. If you’re game, you could buy some around here with a stop near 44, and look to average up if shares eventually push back above 50.
SELL IDEAS
We have four sells, most of which tripped stops, though a couple imploded on bad news. The Sells are Dave & Buster’s (PLAY 65), Grand Canyon Education (LOPE 78), Tesla (TSLA 313) and Yum China (YUMC 37).
In the case of stocks that have totally fallen apart (TSLA) or are bouncing back today (YUMC), you can consider selling some and seeing how things go in the days ahead for the rest of your shares. But, overall, just make sure a bad situation doesn’t get much worse.
SUGGESTED STOPS
Activision Blizzard (ATVI 58) near 56
Adobe Systems (ADBE 142) near 136.5
Arista Networks (ANET 148) near 143
Autodesk (ADSK 103) near 99
Berry Global (BERY 57) near 55
Best Buy (BBY 58) near 55
Bluebird Bio (BLUE 100) near 97
CoStar Group (CSGP 268) near 250
Domino’s Pizza (DPZ 212) near 205
Exact Sciences (EXAS 37) near 33
Global Payments (GPN 89) near 87
Graco (GGG 108) near 107
HealthEquity (HQY 50) near 47.5
Impinj (PI 50) near 46.5
InteractiveCorp (IAC 103) near 97
IPG Photonics (IPGP 150) near 140
JD.com (JD 39) near 38
LendingTree (TREE 170) near 160
Lumentum (LITE 60) near 56
Marriott Vacations (VAC 116) near 114
Medidata Solutions (MDSO 79) near 72.5
MiMedx Group (MDXG 15) near 13.9
Nvidia (NVDA 147) near 139
Paycom Software (PAYC 67) near 65
Penn National Gaming (PENN 21) near 20
Planet Fitness (PLNT 22) near 21.5
RingCentral (RNG 37) near 34
ServiceNow (NOW 106) near 100
Sherwin Williams (SHW 352) near 340
SiteOne Landscape (SITE 53) near 49.5
Square (SQ 24) near 22
Summit Materials (SUM 29) near 27.5
Take-Two Interactive (TTWO 74) near 71
Terex (TEX 36) near 35
Trade Desk (TTD 49) near 48
Universal Display (OLED 111) near 106
Veeva Systems (VEEV 62) near 57.5
Vertex Pharmaceuticals (VRTX 130) near 119.5
Workday (WDAY 97) near 94.5
Wynn Resorts (WYNN 132) near 125
XPO Logistics (XPO 65) near 56.5