The three major indexes have all booked seven straight sessions of advances, pushing decisively out to consecutive new highs and leaving their moving averages far behind. The S&P 500 successfully completed a run of advances every month from May through September, which, as we wrote about last week, is a rare and historically bullish feat that has led to gains in the fourth quarter all six times it has occurred since 1928.
All in all, it’s hard to imagine a more supportive market environment. The number of new lows on the NYSE has been quiet (below 20 per day) for 17 straight sessions. The gold rally has stalled out and a recent news story pointed out that active stock-picking strategies were producing the best results among institutional investors.
There are always challenges, of course. Third-quarter earnings season will start to heat up soon, which will produce the usual mix of winners and losers. And the cooling off of many tech leaders is forcing investors to branch out. Add to that the constant threat of disturbing headlines from the various hot spots around the globe and there’s always a chance that the market’s mood could change quickly.
In fact, one of the most common fears among equity investors seems to be that things are going too well, and can’t go on like this forever. A story about the market’s record run and investors who “wonder how it ends” even made it to the front page of today’s Wall Street Journal.
As usual, we will just go with what the market gives us. Right now, the bulls are in charge and you should be bullish, but not complacent. Make sure you put loss limits on any new positions and stick to those limits. Look for the strongest stocks that are showing evidence—strong volume and price trends—that signals leadership.
BUY IDEAS
Alcoa (AA 48) isn’t a sexy story, but the stock has been on a roll since June, and is a good play on the strength of commodity metals as global economic growth continues. Alcoa is traditionally the first big company to deliver quarterly earnings and Q3 results are scheduled for October 18 after the close. You can take a small position here or wait for earnings, but this is a good fundamental story.
CBOE Holdings (CBOE 109) has been a tractor all year, rising steadily to new high after new high. It hasn’t been easy to find a safe entry point, but the stock’s recent dip from 110 to 108 may qualify. It’s probably best to start small and average up, but this is a good way to play the strength of the market. Use a stop at the 50-day line, now just above 101.
China Lodging Group (HTHT 127) is a relatively low-risk Chinese story; the company’s capital-light approach to expansion produces growth without debt and the stock just moved out to new highs after a three-week consolidation. A small position here could pay off well.
Automotive stocks are doing well, with the big automakers finally getting back on top of their 200-day moving averages. We think Meritor (MTOR 26), a supplier of automotive parts for military vehicles, truck and trailers looks good here. The stock is trading sideways under resistance at 27 after its September breakout. You can buy on dips toward 26 or wait for the breakout with a stop around 25.
Valero Energy (VLO 77) built a base from December 2016 through August of this year and looks very strong here, getting support from constrained production capacity and continuing low crude prices. The stock’s pullback of a couple of points from yesterday’s high looks buyable with a stop around 69.
SELL IDEAS
On the sell side, we have only two this week: NovoCure (NVCR 19) and Shopify (SHOP 97).
SUGGESTED STOPS
Abiomed (ABMD 175) near 159
Alexion Pharmaceuticals (ALXN 143) near 137
Align Technology (ALGN 189) near 178
Arista Networks (ANET 190) near 174
Baidu (BIDU 245) near 225
Brinks (BCO 84) near 76
Catalent (CTLT 42) near 37
CBOE Holdings (CBOE 109) near 101
E*Trade (ETFC 45) near 41
Exact Sciences (EXAS 49) near 40
Franco-Nevada (FNV 79) near 77
IPG Photonics (IPGP 191) near
iRhythm Technologies (IRTC 51) near 46.5
LendingTree (TREE 255) near 222
Nintendo (NTDOY 49) near 43
Nvidia (NVDA 180) near 168
Planet Fitness (PLNT 26) near 24.6
Red Hat (RHT 116) near 102.5
Royal Gold (RGLD 87) near 85
Salesforce.com (CRM 96) near 92
SolarEdge (SEDG 29) near 25.5
Spirit Aerosystems (SPR 79) near 72
Square (SQ 31) near 26
Stamps.com (STMP 215) near 197
Take-Two Interactive (TTWO 106) near 95
Terex (TEX 46) near 41
Universal Display (OLED 127) near 118
Vertex Pharmaceuticals (VRTX 156) near 149
Winnebago (WGO 43) near 40