While it hasn’t been earth shattering, we’ve finally started to see some selling pressures emerge during the past few days, first on the broad market, and late this week, on the major indexes. Of course, the media is putting out reasons for the decline (a possibly delay in any corporate rate cut is one popular reason making the rounds), but the fact is the market was probably due for some air pockets after its uninterrupted run.
Even so, the damage has been very limited so far and nothing has changed with our top-down view: The intermediate- and longer-term trends of the market remain up, and Top Ten stocks are generally moving higher and most are reacting well to earnings. Thus, we remain bullish.
As we wrote last week, we’re still monitoring the broad market, which has shown signs of wear and tear during the past four weeks; the percent of NYSE stocks above their 50-day lines has dipped from 79% to 57% despite the indexes grinding higher, while the number of stocks hitting new lows has picked up on both exchanges.
This year as a whole has been divergent and rotational, so we’re not sweating it at this point, but we’re watchful for signs that the weak broad market is infecting the rest of the market. Indeed, we’ve seen more “non-growth” stocks break down in recent weeks both on earnings and for other reasons.
Short-term sentiment also remains a bit elevated—during the past four weeks, we’ve finally seen a steady stream of money pour into equity funds, outpacing even bond funds (which has been a rarity in recent years). We never really trade based on sentiment, which is inexact to say the least, but consider it a reminder to pick your spots on the buy side and not to forget to book a few partial profits.
All told, you should remain heavily invested, but don’t forget to follow your plan and honor your stops.
BUY IDEAS
58.com (WUBA 68) has had three pretty strong shakeouts since gapping up on earnings in August, but now the stock is tightening up near its highs, just ahead of earnings (November 13). If you’re game, you could nibble here, or simply look for a powerful breakout above 70 (with a stop near 62.5) next week.
ASML Holding (ASML 178) has been a leader in the chip sector for a while, so there’s a chance it could have a “real” correction. But so far, the stock has acted well, and this week’s modest-volume dip to the 25-day line looks par for the course in the stock’s advance. If you don’t own any, you could buy some here with a stop near 168.
First Solar (FSLR 62) gave us a big scare the day after we recommended it last week, falling sharply on news/rumors of a smaller-than-expected solar tariff. But it didn’t knock us out and has since ripped back to higher highs, with a rest just north of 60 in recent days. You could buy some here or (preferably) on dips, this time with a stop around 54.
Michael Kors (KORS 55) gapped up on earnings on August 8 and reached 46 the next day. As of last week, the stock was at 47.5, so it hadn’t made much progress in two and a half months. But then came a good-looking earnings gap on Monday, and the stock has held firm since. KORS is a bit extended, but coming after the period of no progress, keep your eye on it—dips of a point or more would be tempting, albeit with a loose stop near 49
Universal Display (OLED 175) was our Top Pick this week, and while it’s had a couple of tiny pullbacks, the stock has mostly been a moonshot despite the market’s late-week wobbles. If you own some, by all means hang on. If not, we’d still try to look for dips, although we’re raising the buy range from Monday—a dip into the 163-170 area would be an opportunity for a small buy, with a stop in the 145-150 range.
We still like the action in most refiners, including Valero (VLO 81), which enjoyed a persistent run higher in September, paused beautifully in October, and lifted to new highs on good volume following earnings late last month. You could buy some here or on pullbacks below 80, with a stop near 75.
SELL IDEAS
On the sell side, we have eight stocks that tripped their stops and are now sells: Alcoa (AA 44), Avis Budget (CAR 33), Guess (GES 17), HubSpot (HUBS 81), iRhythm Technologies (IRTC 48), Loxo Oncology (LOXO 82), Proofpoint (PFPT 89) and Skechers (SKX 32). Some of these (like GES and SKX) have bounced quickly back, so if you still own them, giving them a little rope is fine. But we’ll just follow the rules and list them as sells because of their stop violations.
SUGGESTED STOPS
58.com (WUBA 68) near 62.5
Abiomed (ABMD 195) near 173
AbbVie (ABBV 94) near 87.5
Allegheny Technologies (ATI 23) near 22.8
Alibaba (BABA 186) near 168
Align Technology (ALGN 248) near 210
Alnylam (ALNY 139) near 124
BitAuto (BITA 47) near 45
CBOE Holdings (CBOE 115) near 107
China Lodging (HTHT 126) near 120
E*Trade (ETFC 43) near 42.4
Guidewire Software (GWRE 80) near 76.5
IPG Photonics (IPGP 223) near 195
Juno Therapeutics (JUNO 55) near 47
Lear Corp. (LEA 176) near 166
Ligand Pharmaceuticals (LGND 141) near 136
Meritor (MTOR 26) near 24.5
Navistar (NAV 39) near 38
Nintendo (NTDOY 48) near 45.5
Nvidia (NVDA 217) near 185
Planet Fitness (PLNT 30) near 26.5
Pure Storage (PSTG 17) near 15.5
Red Hat (RHT 123) near 113
Salesforce.com (CRM 104) near 97.5
Sociedad Quimica (SQM 58) near 53
SolarEdge (SEDG 38) near 30.5
Spirit Aerosystems (SPR 81) near 76.5
Square (SQ 39) near 31.5
Take-Two Interactive (TTWO 115) near 103
Terex (TEX 45) near 42.5
Universal Display (OLED 175) near 135
Winnebago (WGO 4948 near 43
Yelp (YELP 46) near 43
YY Inc. (YY 88) near 82.5