Last week’s Movers & Shakers was written just as the market was beginning its remarkable rebound from two weeks of sharp declines. That rally has continued to run, sending many stocks back into rally mode and actually pushing the major indexes above their 50-day moving averages (and the Nasdaq even above its 25-day!).
We’re a little skeptical that the market is just going to continue its V-shaped recovery and forget about the correction. Yes, the long-term trend of the market is still up, and that’s evidence in favor of the resumption of the advance in the indexes and stocks. But after a true correction (10+ percent decline), it’s more typical for markets to need either a period of sideways trading or a retest of lows before getting back on the rally track.
We won’t argue with the market, of course. If it goes up, it goes up, and we will act accordingly.
But we also believe in quick action during corrections and a more leisurely approach when getting back into buying mode. In this kind of market, you can do some buying, but take a step-by-step approach, waiting to see how your new buys perform before increasing your exposure. In other words, let the market pull you back in rather than jumping back in with both feet.
We had a bunch of stocks trip their stops last week, including some that have bounced along with the market. If you haven’t sold and the charts still look good, go ahead and hold on. Just be sure to keep your mental stops in place and consider taking partial profits while we wait to see what the market does.
BUY IDEAS
When thinking about buying, the stronger the chart the better. Stocks that have resisted the market’s pullback and are riding higher on its recovery are your best bet right here.
Abiomed (ABMD 263) took off from a two-month base in January and found support at its rising 25-day moving average during the correction. A jump higher on huge volume on Wednesday kicked ABMD to new highs. Try to get in on a pullback toward 255 and use a stop at 230.
Global Blood Therapeutics (GBT 63) broke out on January 9 and 10 on news that its treatment for sickle cell anemia had received Breakthrough Designation. The stock continued to show strength during the market’s pullback. It’s speculative, but the story is big and there should be data from Phase III trials before June. You can nibble on any weakness and use a loose stop in the face of expected volatility.
Match Group (MTCH 42) advanced on a straight line from October through January, then stumbled as February began. But the stock ignored the correction and started another strong advance on big volume on February 9. A dip toward 40 would be a good buying opportunity, with a stop around 36.
Shutterfly (SFLY 75) came out of a years-long stretch in the doldrums with a rally that started in late November and a gap-up from 53 to 68 on monster volume on January 31. SFLY followed through to a high at 75, then pulled back to 69 on low volume. The recovery to above 74 looks like evidence that the buyers aren’t done yet. A small purchase on any pullback could work.
Twitter (TWTR 33) is another stock that got tossed in the surf through 2016 and much of 2017. But great growth in daily active users and a quarter of GAAP profitability made the company’s quarterly report good reading for growth investors. It’s best to start small, but a buy under 33 (with a stop at 30) could be a nice foot in the door.
SELL IDEAS
As might be expected during a week when the market rallied strongly, there aren’t many sells this week. One stock, NetApp (NTAP 58) tripped its stop and was sold. And as a reminder, if you held onto any of the flock of stocks that tripped their stops last week, you may be pleased with the results, either as a bounce to sell into or as a fortunate hold as the market powered higher. Just be sure to keep your stops in place and follow the rules.
Very few changes to the stops below—don’t hesitate to email me directly (mike@cabotwealth.com) with any questions or comments on these or any Top Ten stock!
SUGGESTED STOPS
AbbVie (ABBV 117) near 105
Abercrombie & Fitch (ANF 22) near 18.5
Abiomed (ABMD 264) near 220
ASML Holdings (ASML 194) near 179
Charles Schwab (SCHW 52) near 48.5
Commercial Metals (CMC 24) near 21.5
Global Blood Therapeutics (GBT 63) near 49
Insulet (PODD 77) near 70.5
Kohl’s (KSS 66) near 57.5
Ligand Pharmaceuticals (LGND 159) near 145
Match Group (MTCH 42) near 31
Michael Kors (KORS 64) near 55.5
Neurocrine Biosciences (NBIX 85) near 76
Old Dominion (ODFL 136) near 127
Peabody Energy (BTU 41) near 36.5
Red Rock Resorts (RRR 34) near 30
Sage Therapeutics (SAGE 161) near 149
Steel Dynamics (STLD 47) near 41.5
Teck Resources (TECK 30) near 25.5
Twitter (TWTR 33) near 27
Weibo (WB 135) near 110
Westlake Chemical (WLK 108) near 96
Wingstop (WING 47) near 42.5
Zendesk (ZEN 43) near 36