Housekeeping Note: There will be no Top Ten issue or Movers & Shakers update next week, as it’s one of our two weeks off all year. (It’s a holiday-shortened week that usually doesn’t have a ton of action.) We will be available on email, though, if you have questions. All of us at Cabot wish you and yours a Merry Christmas, Happy Holidays and prosperous New Year!
As for the market, it remains in a bull mode, with the trends of the major indexes and most individual stocks pointed up. That said, we’re starting to think differently when it comes to the short-term vs. the long-term.
Shorter-term, things look fine, but there’s no question that (a) the major indexes and many stocks are extended to the upside, and (b) investor sentiment is getting giddy. Of course, both of these things are very inexact, which is why we don’t advise trading on them—the market has been “overbought” for a few weeks, for instance, but that hasn’t stopped the buyers.
That said, the big recent run and elevated sentiment are good reasons to keep your feet on the ground, i.e., look for good entry points, honor your stops and loss limits, and so on. Oftentimes the environment gets trickier after investors get this enthusiastic.
Longer-term, though, we’re seeing some intriguing studies that point to higher prices down the road. One comes from Ryan Detrick of LPL Financial, and it concerns how overbought the S&P 500 has become on its weekly chart; it’s only been this stretched eight times (excluding repeat signals) since 1950. Yet after these occurrences, the market has tended to go up, by 6%, 11% and 14% over the next three, six and 12 months (respectively).
We also could get another signal from our own 7.5% Rule today if the S&P 500 closes with a decent gain today, and historically, such signals point to similar gains as the just mentioned. We wouldn’t consider either of these back-up-the-truck buy signals, but they do indicate the bull market should continue in 2018.
All told, we remain bullish and are holding our strong stocks and focusing new buying on stocks that just kicked off new uptrends within the past couple of months. (Many of the growth leaders that ran up all year continue to look iffy.) But we’re also updating our stops and tightening leashes on losers and laggards.
BUY IDEAS
If you didn’t jump on Beacon Roofing (BECN 61) earlier this month, we think the recent pullback/consolidation near the 25-day line looks like a good entry point, as volume’s been light during the retrenchment. You can buy some here with a stop near 37.
It’s a similar story with First Solar (FSLR 69), which has calmed down nicely during the past two weeks after a huge-volume ramp to new highs. We’d still prefer a bit of a pullback for a better entry, but we’re OK nibbling here or on dips of a couple of points, with a stop in the upper 50s.
Match.com (MTCH 32) got going in late August, so it’s not as “fresh” as we’d prefer. But after an earnings spike in early November, shares pulled back to their 50-day line by mid-December and have recently surged to new closing highs on decent volume. We’re OK buying some here with a stop near 27.5.
Nutanix (NTNX 35) has pulled in a bit this week, and its overall sideways movement this month is allowing its moving averages to catch up (the 25-day line is at 34.2, while the 50-day has risen to 31). The price/volume action here remains enticing, and while NTNX isn’t at an ideal entry point, we’re OK buying a little here if you don’t own any, with a stop just below the 50-day line.
Transport stocks remain very strong, and Old Dominion (ODFL 130) has tightened up nicely after a solid upmove from September through November. You can buy some here, with a stop around 121.
SELL IDEAS
We’ve had two stocks trip their stops this week—Align Technology (ALGN 222) and Pure Storage (PSTG 16). Both are sells.
And don’t forget to bang out some partial profits here and there. Caterpillar (CAT 155) is a good candidate if you haven’t sold some previously, as the stock is moving out of trend on the upside, which usually precedes a pullback (sometimes a sharp one).
SUGGESTED STOPS
AbbVie (ABBV 98) near 92
Abiomed (ABMD 191) near 181
Alnylam (ALNY 125) near 119
Caterpillar (CAT 155) near 138
CBOE Holdings (CBOE 125) near 116
CF industries (CF 42) near 37.5
Cree (CREE 38) near 34
Dana Inc. (DAN 32) near 30
DXC Technology (DXC 96) near 90
E*Trade (ETFC 50) near 45.5
Flir Systems (FLIR 47) near 45
Global Blood Therapeutics (GBT 40) near 35.5
Lear Corp. (LEA 178) near 172
Match Group (MTCH 32) near 27.5
Neurocrine Biosciences (NBIX 72) near 68
PBF Energy (PBF 35) near 30.5
Polaris (PII 126) near 120
Planet Fitness (PLNT 35) near 29.5
Red Hat (RHT 123) near 118
Restoration Hardware (RH 96) near 89
SolarEdge (SEDG 38) near 34
Spirit Aerosystems (SPR 86) near 80
ST Microelectronics (STM 22) near 21
Teledyne Technologies (TDY 181) near 173
Trex (TREX 108) near 102
Universal Display (OLED 177) near 152
Wingstop (WING 38) near 36.5
Winnebago (WGO 56) near 49.5
YY Inc. (YY 115) near 100
Zendesk (ZEN 34) near 32