The title of our issue on Monday was “Tricky but Bullish,” and since then, things have gotten even trickier. While the Dow Industrials have grabbed the headlines by hitting the 22,000 level for the first time, most growth-oriented stocks—the leaders of the rally this year—have been struggling. Indeed, the Nasdaq has seen a fair amount of high-volume selling while the Dow has been heading higher.
Small- and mid-cap indexes have also come under pressure, and beyond the day-to-day wiggles, it’s fair to say that, barring a handful of earnings winners, not much money has been made in recent weeks, despite the up market.
None of that means you should head for the hills or that a defensive stance is appropriate. The market and most stocks are in general uptrends and few leading stocks have broken down to any major degree.
But back to the word we used above, the situation is tricky, as strength is being sold into and most stocks are gyrating around. If you’ve been stopped out of a few names, it’s OK to sit on some of that cash for a bit and see how things play out in the days ahead. As for new buys, it’s important to pick your spots and consider starting with a smaller-than-normal position and then piecing your way into the stock if it continues higher.
From here, it’s simply about following the action—a couple more bad days from leading stocks could produce a red flag, but as we wrote above, a really good day or two would probably clear the air and allow the longer-term uptrend to decisively resume.
Altogether, it’s possible we’ll nudge our Market Monitor down a notch on Monday. We’re still mostly bullish, but are honoring our stops and being more selective on the buy side.
BUY IDEAS
It’s certainly not the sexiest name but Citigroup (C 69) continues to act very well, gliding higher along its 25-day line since its big-volume breakout in early June, with excellent volume patterns. Given the stock’s character, try to buy on dips of 50 cents to a point per share, with a stop around 64.5.
Exelixis (EXEL 27) has been pulling back with most growth stocks during the past week or so, and even had a small negative reversal on earnings yesterday. But the dip so far is normal compared to its huge rally since mid-June. If you don’t own any, a small position here with a stop near the 50-day line (around 23.5) makes sense.
iRhythm Technologies (IRTC 44) broke out in late June, then pulled back grudgingly for a month, finding support near its 50-day line. Now shares have bolted higher on excellent volume after earnings. IRTC is a thin, choppy stock, but it’s in good shape—a small position here with a stop near 40 seems like a good risk-reward trade.
Littelfuse (LFUS 184) had a nice wash-and-rinse day (down early then finishing up a lot) on earnings a couple of days ago, holding above its 25-day line. Hang on if you own some, and if you don’t, you can consider a small position around here with a stop near 170.
Square (SQ 26) has pulled back with most growth stocks lately, including a dip yesterday after its quarterly report. But so far the dip is acceptable (it held its 50-day line yesterday) and the stock is starting to bounce. We’re OK with a small position here, but be sure to use a stop near 23.5 in case the selling continues.
Wayfair (W 80) tightened up in the 73 to 80 range, then pulled back a bit this week before bouncing nicely off its 50-day line. It looks ready to go … if earnings (due out August 8) don’t disappoint. If you want to roll the dice, starting with a small position here could work, with the idea of buying more on any decisive move above 81 on earnings.
SELL IDEAS
Arista Networks (ANET 174) skidded to three-month lows this week, knocking us out of our position at a good profit—but then the stock exploded to new highs following earnings today. (It’s frustrating, but it happens.) If you still own it, obviously hang on, and if you sold, you could consider buying a small position back, though with so many earnings gaps recently leading to weakness, we’ll wait to see if ANET can set up properly again.
We also have a handful of other stocks that have tripped their stops, often on earnings: Carvana (CVNA 17), ILG Inc. (ILG 26), Impinj (PI 39), Paycom Software (PAYC 70), Penn National Gaming (PENN 21), Regeneron Pharmaceuticals (REGN 471), Summit Materials (SUM 29), Teladoc (TDOC 32), Trivago (TRVG 19) and WellCare Group (WCG 176).
SUGGESTED STOPS
Activision Blizzard (ATVI 62) near 59
Adobe Systems (ADBE 148) near 141
Autodesk (ADSK 109) near 106
Autohome (ATHM 49) near 44.5
Bob Evans (BOBE 67) near 66
Boyd Gaming (BYD 26) near 24.8
CBOE Holdings (CBOE 93) near 89
Cooper Co. (COO 243) near 235
CoStar Group (CSGP 275) near 262
Exact Sciences (EXAS 38) near 34.9
First Republic Bank (FRC 102) near 97.5
Global Payments (GPN 98) near 92
InteractiveCorp (IAC 109) near 102
IPG Photonics (IPGP 161) near 147
iRhythm Technologies (IRTC 44) near 40.5
JD.com (JD 46) near 41.5
LendingTree (TREE 227) near 190
Lumentum (LITE 60) near 58.5
Medidata Solutions (MDSO 78) near 74
New Relic (NEWR 45) near 43
Nintendo (NTDOY 42) near 39
Nvidia (NVDA 169) near 150
Packaging Corp. (PKG 110) near 106
Planet Fitness (PLNT 24) near 22.2
Puma Biotech (PBYI 85) near 82
ServiceNow (NOW 109) near 104
SiteOne Landscape (SITE 53) near 50
Square (SQ 26) near 23.5
Take-Two Interactive (TTWO 88) near 77
Terex (TEX 40) near 36.5
Trade Desk (TTD 54) near 49
Universal Display (OLED 119) near 108
Veeva Systems (VEEV 63) near 58
Vertex Pharmaceuticals (VRTX 155) near 139
Workday (WDAY 102) near 98
XPO Logistics (XPO 58) near 57
Zillow (Z 45) near 44