Nothing has changed with our overall market view this week. The major indexes are up modestly and earnings season has produced its usual mixed bag of some winners and some losers, but no disastrous blowups among institutional-quality leading stocks.
The best odds remain centered on the market’s intermediate- to longer-term outlook, as all of the major indexes and the majority of stocks and sectors are in gear on the upside. Broad market measures like the advance-decline line are also hitting new highs, while some longer-term sentiment measures like money flows continue to point to investor caution—there’s actually been money yanked out of equity funds on balance since the start of September, when the market’s recent run began.
Short-term, we still think things could be tricky, mostly because of earnings season, but also because of some short-term signs, including the complete dearth of volatility lately and some elevated investor surveys.
Don’t get us wrong—we’re not predicting some sort of correction or pullback. But, assuming you’ve been following along and are heavily invested, we’d be a bit choosy when it comes to new buying. In other words, don’t go out and buy four stocks that are about to report earnings next week, and/or that are very extended on their charts. Honestly, a reasonable dip in the market would probably produce a ton of good-looking setups, but we’ll see if that happens.
Thus, we remain overall bullish, so you should be holding your strong stocks and following your plan as earnings season progresses. On the buy side, there’s nothing wrong with putting money to work, but look for solid entry points and be sure to keep new positions on the small side if a stock is due to report earnings within the next two weeks.
BUY IDEAS
Atlassian (TEAM 50) is soaring today on earnings on gigantic volume, which, coming after the very long post-IPO base-on-base formation, bodes well. Obviously it seems extended here, and we’ll see how it does during the day, but if you don’t own any, you could buy a little here with a loose stop near 43. If you nibbled ahead of the report, go ahead and average up in small amounts.
Catalent (CTLT 43) has a nice-looking set up here, with a big gap up in late August, and a six-week consolidation since. It’s now showing signs of getting going—you could buy a little here with a stop near 39. Earnings are likely out in early November.
Live Nation (LYV 43) has had an extended run, which raises risk somewhat, but we like the recent action a lot—shares dipped modestly over a month’s time to its 50-day line, and have spiked off that support on excellent volume. You could buy a little here with a stop near 40.5. Earnings are likely out in early November.
We’re intrigued by the action in Sociedad Quimica (SQM 60), which went bananas from July through mid-September before a very sharp, but totally reasonable, pullback. Now the stock has been creeping higher along its 25-day line; further consolidation is possible, but we’re OK with a small position here or on dips to 58, with a loose stop near 52.
YY Inc. (YY 92) has been a powerful Chinese stock for the past few months, and it emerged from a brief one-month pause late last month and ran from 80 to 97. Now it’s having a trend knockout of sorts, including yesterday morning’s dip below 90. We think you can start a position here or on dips toward 90, with a stop around 81. Earnings are likely out in mid-November.
SELL IDEAS
This week, we have four outright sells: Alexion Pharmaceuticals (ALXN 138), Celgene (CELG 122), BeiGene (BGNE 84) and LendingTree (TREE 229).
Beyond those, don’t forget to take a few chips off the table if you own some stocks that have run for the past few weeks. Red Hat (RHT 121) is one example—
the stock looks great but is extended, so if you haven’t yet, you can consider selling a few shares and holding the rest.
SUGGESTED STOPS
58.com (WUBA 67) near 61
Abiomed (ABMD 173) near 161
Align Technology (ALGN 198) near 181
Arista Networks (ANET 192) near 177
Baidu (BIDU 267) near 233
Brinks (BCO 85) near 79
Catalent (CTLT 43) near 39
CBOE Holdings (CBOE 109) near 103
E*Trade (ETFC 43) near 42
Exact Sciences (EXAS 49) near 40.5
Franco-Nevada (FNV 80) near 78
Guess (GES 16) near 15.2
Guidewire Software (GWRE 78) near 75
IPG Photonics (IPGP 204) near 180
iRhythm Technologies (IRTC 53) near 47.5
Lear Corp. (LEA 173) near 162
Live Nation (LYV 43) near 40.5
Loxo Oncology (LOXO 87) near 81
MyoKardia (MYOK 38) near 36
Nintendo (NTDOY 48) near 44.5
Nvidia (NVDA 197) near 174
Planet Fitness (PLNT 26) near 25
Red Hat (RHT 122) near 110
Royal Gold (RGLD 88) near 85.5
RPC Inc. (RES 23) near 21.9
Salesforce.com (CRM 98) near 94.5
SolarEdge (SEDG 30) near 26.5
Spirit Aerosystems (SPR 80) near 73.5
Square (SQ 33) near 28.5
Stamps.com (STMP 219) near 205
Summit Materials (SUM 32) near 30.5
Take-Two Interactive (TTWO 105) near 96
Terex (TEX 46) near 42
Universal Display (OLED 135) near 119
Vertex Pharmaceuticals (VRTX 154) near 149
Winnebago (WGO 48) near 40.5