The major indexes have traded lower this week—in fact, the S&P 500 is threatening to close lower all five days this week, which would be the first time it’s done that since before the November 2016 Presidential election. Even so, the losses have been modest, in the range of 1% or a bit more.
Right now, our intermediate-term trend following indicator remains bullish, as most indexes remain above their rising 25-day moving averages. And it’s a plus that growth-oriented indexes like the Nasdaq and S&P 600 SmallCap remain the strongest—both hit or approached all-time highs before easing lower in recent days.
A drop of 2% to 3% from here would probably be enough to tell us the rally has failed. But right now, the action looks normal. We wouldn’t say the market is super strong, but it’s positive—good, not great.
Individual leading stocks, on the other hand, continue to impress. Even during the recent slip, many stocks have pushed higher, and those that have taken a breather have generally pulled back grudgingly. In the very short-term, we have seen a bit of underperformance (meaning growth stocks have pulled back more than, say, the S&P 500) in recent days, but that’s to be expected after the recent run.
We always go with the evidence in front of us, and today, we have a positive (though choppy) market environment and a bunch of very strong stocks that are proving hard to buy (which is in itself a good sign). Overall, then, we remain bullish.
One last point: Obviously, many stocks are extended to the upside in the short-term, which does raise risk. However, most (not all) of these leaders have only recently broken out from launching pads; in other words, they’re not longer-term extended (they haven’t been running higher without interruption for months on end). Thus, we’re OK buying leaders on only minor weakness, but it’s not a bad idea to keep positions a bit smaller than usual and use a looser initial loss limit.
BUY IDEAS
Five Below (FIVE 70) has been building a base since early January; it’s nearly 10 weeks into its consolidation and has tightened up in recent days. The company will report earnings next Wednesday (March 21) after the close—a big-volume move above 72 would be very bullish. If you’re aggressive, you could nibble ahead of the report, but there’s nothing wrong with just waiting to see the reaction.
Insulet (PODD 85) has been a choppy stock, having fluctuated between 72 and 79 for two months, including a fake breakout in mid-February. But now it appears to have finally gotten going, moving to new price highs on good volume. You can buy a little here or (preferably) on dips of a couple of points, with a stop just under 76.
Okta (OKTA 39) staged an excellent breakout in mid-February, followed by a persistent advance as high as 43 before taking a breather. Shares have dipped a few points during the past six trading sessions, yet remain above their rapidly-rising 25-day line. We’re OK grabbing a position here, but use a loss limit down in the 34 area.
It’s not at a fantastic entry point, but we’re very impressed with the action in Veeva Systems (VEEV 77). After the stock exploded to new highs following earnings (which included four straight days of gains, each coming on at least double average volume), it’s moved straight sideways in a very tight range (76 to 78) as volume has dried up. You can nibble here or on dips if you’re not in, with a stop just below 70.
Yandex (YNDX 42) broke out in January, and after a shakeout with the market in early February, soared to new highs on big volume following earnings. Since then, the stock’s done a nice job of quieting down, including a modest, low-volume retreat toward its 25-day line this week. We’re OK with taking a stab at it here, with a stop near 39.
SELL IDEAS
First off, don’t forget to take a few chips off the table if you’ve caught a tiger by the tail. Zendesk (ZEN 47) is a good example—it’s up 40% since early February! It looks great, but if you have a solid profit, consider booking some and holding the rest.
As for outright sells, we have four this week: Commercial Metals (CMC 25), Global Blood Therapeutics (GBT 53), MyoKardia (MYOK 50) and Peabody Energy (BTU 40).
SUGGESTED STOPS
AbbVie (ABBV 116) near 108
Abercrombie & Fitch (ANF 23) near 20
Abiomed (ABMD 295) near 250
Arch Coal (ARCH 97) near 92
Array Biopharma (ARRY 17) near 15.9
ASML Holdings (ASML 214) near 195
Charles Schwab (SCHW 56) near 52.5
Harris (HRS 157) near 152
Insulet (PODD 85) near 75.5
Knight-Swift Transportation (KNX 50) near 47
Kohl’s (KSS 63) near 59.5
Ligand Pharmaceuticals (LGND 175) near 158
LPL Financial (LPLA 65) near 61
Match Group (MTCH 47) near 38
MercadoLibre (MELI 383) near 360
Michael Kors (KORS 62) near 59.5
Neurocrine Biosciences (NBIX 91) near 82.5
Old Dominion (ODFL 148) near 136
Pure Storage (PSTG 21) near 19.5
Sage Therapeutics (SAGE 174) near 157
Steel Dynamics (STLD 47) near 44.5
Twitter (TWTR 36) near 30
U.S. Steel (X 40) near 37
Vale (VALE 13) near 12.4
Weibo (WB 133) near 126
Westlake Chemical (WLK 115) near 107
W.W. Grainger (GWW 285) near 257
Zendesk (ZEN 47) near 41.5