It’s been a bit of an unusual week, with the major indexes generally giving ground for most of the first four days, especially the Nasdaq, which had been drastically underperforming. Then came today, when a few bullish earnings reactions from giants like Intel and Amazon helped the Nasdaq rip higher, though so far, it’s mostly a mega-cap affair. (Interesting, the equal-weight S&P 500 and Nasdaq 100 indexes are both down today.)
Despite the ups and downs, not much has changed in the market from a top-down perspective—the intermediate- and long-term trends are pointed up for all the major indexes and most stocks and sectors. However, there are a few things we’re watching closely as we head into November.
First is the aforementioned relative strength of the Nasdaq vs. the Dow and S&P 500. The Nasdaq has been lagging in a big way since early September, but we’re curious to see if earnings season changes that.
On the flip side, we’re keeping an eye on the biotech sector, which has turned very weak due to a blowup in blue chip Celgene (CELG) and continued fears of political pricing pressure. While biotechs haven’t been a true leading group, a further implosion in the sector has the potential to “infect” some other growth areas.
And third, we’re watching the broad market, as the number of stocks hitting new lows on the NYSE and Nasdaq has picked up markedly in recent days. Granted, a lot of those are either interest rate-sensitive securities or oil stocks (especially MLPs, which have been sinking), but it’s worth watching.
Still, the vast majority of the evidence remains bullish, so we advise you to remain heavily invested. As for new buying, it’s still a bit tricky, as many stocks are either extended to the upside, reporting earnings within a week or two, or both. Plus there’s a ton of rotation occurring on a weekly and almost daily basis—that’s not a negative, but it does make latching onto stocks a challenge.
Thus, do your best to stick with good buy points, and be sure to adhere to your loss limits in case something gets whacked. Overall, though, the trend is up, so we advise holding your top performers and using dips as buying opportunities.
BUY IDEAS
It’s a bit risky because the biotech sector is a mess, but we still like the overall pattern on AbbVie (ABBV 93), which got hit earlier this week, but found support above its 50-day line and is surging back this morning after earnings. You could buy a little around here with a stop near 86.
Match Group (MTCH 26) has pulled back nicely during the past two weeks on very light volume to its 25-day line, which looks like a solid entry point. The only issue here is that earnings are out in a couple of weeks (November 8) but we’re not opposed to taking a small position here (with a stop near 23) and seeing what earnings brings.
Salesforce.com (CRM 101) hasn’t been a powerful leader this year, but after nearly four months of no net progress, the stock has come alive in recent weeks and pushed to new highs on good volume this week. You could buy some here or on dips of a point or two, with a stop near 95. Earnings are likely out in late November.
Yelp (YELP 46) reports earnings next Wednesday (November 1), which will be the big event. We like the overall chart pattern—after soaring on earnings in August, the stock has meandered higher, holding its 50-day line this month, and begun to perk up toward its highs. You can wait for the report, but if you want to roll the dice, you can nibble here with a stop around 41.
SELL IDEAS
We have seven sells this week as some stocks have tripped their stops, broken support or shown lagging action. Brinks (BCO 79), Franco-Nevada (FNV 79), RPC Inc. (RES 23), Stamps.com (STMP 218), Vertex Pharmaceuticals (VRTX 146), Ultra Clean (UCTT 24) and Weibo (WB 91) are all on the sell list this week.
As for partial profits, don’t forget to book some here or there while the market is hot—Align Technology (ALGN 227), Caterpillar (CAT 138) and MKS Instruments (MKSI 104) are three examples of stocks that are a bit out of trend on the upside.
SUGGESTED STOPS
58.com (WUBA 62) near 61
Abiomed (ABMD 181) near 165
AbbVie (ABBV 93) near 86
Alibaba (BABA 175) near 160
Align Technology (ALGN 227) near 190
Arista Networks (ANET 193) near 179
Baidu (BIDU 243) near 236
BitAuto (BITA 48) near 44
Catalent (CTLT 43) near 39.5
CBOE Holdings (CBOE 111) near 104
China Lodging (HTHT 131) near 120
Eagle Materials (EXP 105) near 103
E*Trade (ETFC 43) near 42
Guess (GES 17) near 15.7
Guidewire Software (GWRE 77) near 75
IPG Photonics (IPGP 207) near 185
iRhythm Technologies (IRTC 52) near 48
Juno Therapeutics (JUNO 43) near 40.5
Lear Corp. (LEA 174) near 163
Live Nation (LYV 42) near 40.8
Loxo Oncology (LOXO 84) near 82
LPL Financial (LPLA 50) near 49
Nintendo (NTDOY 48) near 45
Nvidia (NVDA 197) near 176
Planet Fitness (PLNT 26) near 25
Red Hat (RHT 120) near 111
Salesforce.com (CRM 101) near 95
SolarEdge (SEDG 32) near 27.5
Spirit Aerosystems (SPR 79) near 74
Square (SQ 34) near 29
Summit Materials (SUM 31) near 30.5
Take-Two Interactive (TTWO 106) near 97
Terex (TEX 47) near 4220
Universal Display (OLED 134) near 119
Winnebago (WGO 48) near 41
YY Inc. (YY 86) near 81