This week was a constructive one, with the major indexes gaining and many leading stocks acting well. Coming after plenty of weak, sloppy action over the past month (including four down weeks in a row for the Nasdaq), it’s a positive sign.
Still, taking a step back, not much has really changed. The intermediate-term trend is still tilted down, as most major indexes are at or below their 50-day moving averages. (Most also haven’t made any net progress in more than two months, so at the very least we’re not in a real uptrend.) The broad market has shown some improvement, but we still rate it as unhealthy, as a bunch of stocks are hitting new lows most days and small- and mid-cap indexes look sick.
That said, the long-term trend is up, many individual stocks are holding up well (including a few that have put on great advances over the past couple of weeks), and even after repeated bouts of distribution since early June, the big-cap indexes are just 2% to 3% off their all-time highs. That’s hardly a disaster.
Thus, we don’t advise rushing for the exits or swearing off the market; we still think the overall bull market is intact. That’s why you should still hold on to your resilient, profitable stocks.
But we also think the weight of the evidence remains tilted to the negative side, so a cautious stance toward losers and laggards (using tight stops) and new buying (small positions, and definitely pick your spots) makes sense, as does holding a chunk of cash on the sideline.
From here, the game plan is simple. Should the market suffer another leg down, we’ll honor our stops, raise some more cash and likely advise avoiding all new buying until the clouds part. On the flip side, a couple of strong up days (preferably with good volume, which has been lacking on recent big rallies) and positive action from leading stocks could be a green light.
Right now, though, the onus is on the bulls to help the market resume its longer-term uptrend.
BUY IDEAS
Exact Sciences (EXAS 40) has had a few sharp ups and downs since mid-May, but over the past month the stock has traded in a constructive range (36 to 42) even as the market weakened. Now shares are perking back up toward their highs, though volume’s been light. You could nibble with a stop around 36, or just keep an eye on it.
We really like the way Novocure (NVCR 20) has acted in recent weeks—after a huge run from April through early July, the stock has basically chopped sideways in a wide range (17.5 to 21.5) on tame volume since. You could pick up a few shares here with a stop between 17 and 17.5, or just wait for a healthier market and a decisive breakout above 21.5 to jump onboard (with a stop at or a bit above 18).
Nvidia (NVDA 165) has been all over the place, but if you take a step back, you see that the recent earnings shakeout (two weeks ago) was the stock’s second test of its 50-day line since its breakout in May. It’s not early in its overall advance, but you can either buy a little here with a stop near 153, or look for a big-volume thrust above 172 or so (with a stop near 157).
Vertex Pharmaceuticals (VRTX 153) gapped up on giant volume in July and has been pulling back since, but it’s found some decent-volume support a couple of times in the high 140s, and the 50-day line (now nearing 144) isn’t far behind. We’re not opposed to nibbling here with a stop near 140, with the idea of averaging up if the market turns positive and VRTX races ahead.
SELL IDEAS
Three stocks are on our sell list this week: Baozun (BZUN 27), iRobot (IRBT 91) and U.S. Concrete (USCR 71).
Veeva Systems (VEEV 57) is on the edge here—we’re using a mental stop around 58, so a close below there would be enough for us to exit.
Some Chinese stocks have had huge runs, and if you’ve booked some quick gains, don’t be afraid to book some partial profits on the way up. China Lodging (HTHT 111) is a good example—we recommended it just a month ago and it’s up more than 20% since in a tricky market. Consider selling a few shares and trying to let the rest run.
SUGGESTED STOPS
Aaron’s (AAN 44) near 41
Activision Blizzard (ATVI 63) near 59.5
Adobe Systems (ADBE 152) near 144
Autohome (ATHM 65) near 53
Baidu (BIDU 228) near 210
Brinks (BCO 76) near 72
CBOE Holdings (CBOE 99) near 93
Citigroup (C 68) near 65.5
Cooper Co. (COO 247) near 238
CoStar Group (CSGP 286) near 268
E*Trade (ETFC 41) near 38.9
Exact Sciences (EXAS 40) near 36
Expedia (EXPE 149) near 143
First Solar (FSLR 48) near 44
Global Payments (GPN 94) near 92
IPG Photonics (IPGP 167) near 154
iRhythm Technologies (IRTC 45) near 41.9
LendingTree (TREE 224) near 197
New Relic (NEWR 49) near 44.5
Nintendo (NTDOY 41) near 39.5
NovoCure (NVCR 20) near 17.3
Nvidia (NVDA 165) near 153
Planet Fitness (PLNT 24) near 23
Proofpoint (PFPT 91) near 85.5
Red Hat (RHT 105) near 96
Ryanair (RYAAY 113) near 110
Spirit Aerosystems (SPR 71) near 66.5
Square (SQ 25) near 23.5
Take-Two Interactive (TTWO 95) near 83.5
Terex (TEX 38) near 37
Universal Display (OLED 112) near 107
Vertex Pharmaceuticals (VRTX 153) near 140
Winnebago (WGO 34) near 33
YY Inc. (YY 73) near 67.5