During the past couple of weeks, we’ve seen the major indexes hit the skids but most of the resilient, growth-oriented stocks hold up relatively well. This week, though, the script was flipped—the holiday-shortened week saw the major indexes gain 1% (Nasdaq) to 2% (S&P 500), but leading stocks were hit very hard Tuesday and Wednesday.
Looking at the overall market, the intermediate-term trend continues to point mostly down; even after yesterday’s solid rally, all five of the major indexes we track are below both their 25-day and 50-day moving averages. As we’ve written in recent weeks, if you want to argue that the trend of some indexes is sideways instead of down (like the S&P 600 SmallCap, which is just 4% off its highs), you could. But it’s clear the buyers aren’t in control at the very least.
On a positive note, the broad market is showing some rays of light. Many breadth measures (number of stocks hitting new lows, advance-decline lines, etc.) have shown positive divergences as some indexes (like the S&P 500 and NYSE Composite) have retested their February lows. For instance, the number of common stocks hitting new lows on the NYSE hit a maximum of 79 during this down leg, compared to 175 during the early-February plunge. It’s a similar story on the Nasdaq, with a max of 113 new lows this week, compared to 264 in February.
That’s a good first step, but it’s just that—a first step. From here, we’ll need to see most indexes (ideally all of them) surge above their 50-day lines. That would imply a push above 2,730 or so on the S&P 500 and 7,325 on the Nasdaq, hopefully more.
As for individual stocks, the past few days have been rough and many names were stopped out. But poring over the charts, a bunch of names (most outside the technology sector) either held up well this week or fell to their 50-day lines and have (so far) found support.
All in all, it’s still time to be cautious—a nibble on a stock here or there is fine, but we don’t advise diving into a bunch of names with big positions. Holding some cash and honoring your stops are still key, as our main focus right now is capital preservation. That said, if a stock hasn’t stopped you out, you should give it a chance to continue holding up—if the market does get going, these resilient stocks can have good runs.
Last note: Once this correction finishes up, whether that’s in two days or two months, there should be a ton of good opportunities as new leaders build launching pads and as investor sentiment gets overly pessimistic. (One measure of institutional investment levels just hit its lowest level in two years.) But right now, it’s best to tread carefully, build a watch list and wait for the bulls to retake control.
BUY IDEAS
Baozun (BZUN 46) is as volatile a stock as you’ll find, and it did get dented in recent days. But overall, the chart still looks fine—after its monster-volume breakout in early March, the stock is basically unchanged, which is a good showing in our book. If you don’t own any, you could nibble around the 25-day line (at 44 and rising quickly) with a stop just under 40.
Etsy (ETSY 28) isn’t near a great entry point, but we wanted to flag it because it’s showing excellent relative strength—the stock fell just two days from its highs before bouncing back on good volume, and hasn’t even touched its 25-day line yet. ETSY could easily retreat or rest at this point (and possibly offer up a chance to get in), so keep it on your radar screen.
Five Below (FIVE 73) appears to be emerging from an early-stage base that began around the start of the year. The earnings report was applauded last week, and the stock finished at new closing price highs yesterday. You could nibble here or on dips, with a loss limit near 66.
Okta (OKTA 40) has held up very well during the past couple of weeks; it’s one of the few growth stocks that didn’t hit a lower low during that time. Moreover, the stock just broke out from an IPO base in February, so this pullback (the stock’s first since getting going) has a good chance of holding. We’re OK nibbling here or on dips, with a stop near the 50-day line (35 and rising).
Planet Fitness (PLNT 38) had a shakeout in early February (mostly due to the market’s meltdown), then surged to new highs for a few weeks after earnings. Since then, it’s pulled back in grudging fashion and on low volume. We’re OK with a nibble here and a tight loss limit near 35.5.
Shutterfly (SFLY 81) is another stock that’s not at a great entry yet, but has begun to retreat calmly, and on low volume, after a jaw-dropping rally during the past two months. Dips of a couple more points would be tempting, with a stop around the 50-day line (74 and rising).
SELL IDEAS
As expected, a bunch of stocks tripped their stops this week—the following are now sells:
Array Biopharma (ARRY 16), ASML Holdings (ASML 199), Charles Schwab (SCHW 52), Knight-Swift Transportation (KNX 46), Ligand Pharmaceuticals (LGND 165), Micron Technology (MU 52), MuleSoft (MULE 44), Twitter (TWTR 29), Western Digital (WDC 92), Westlake Chemical (WLK 111) and Workday (WDAY 127).
SUGGESTED STOPS
Abercrombie & Fitch (ANF 24) near 21.5
Abiomed (ABMD 286) near 259
Baozun (BZUN 46) near 39.5
BOFI Holdings (BOFI 41) near 37
Fortinet (FTNT 54) near 49.5
GoDaddy (GDDY 61) near 57.5
Harris (HRS 161) near 154
HCA Healthcare (HCA 97) near 94.5
HubSpot (HUBS 108) near 102
Insulet (PODD 87) near 78
Kohl’s (KSS 66) near 60.5
Loxo Oncology (LOXO 115) near 108.5
Lumentum (LITE 64) near 59.5
Match Group (MTCH 44) near 39.5
Michael Kors (KORS 62) near 60
MKS Instruments (MKSI 116) near 110.5
Netflix (NFLX 295) near 275
New York Times (NYT 24) near 23
Old Dominion (ODFL 147) near 139
Ollie’s Bargain Outlet (OLLI 60) near 56.5
Paycom (PAYC 107) near 100
Pegasystems (PEGA 61) near 56
Qualys (QLYS 73) near 70
Red Hat (RHT 150) near 142.5
Splunk (SPLK 98) near 92
TAL Education (TAL 37) near 34.5
TD Ameritrade (AMTD 59) near 56
Teledoc (TDOC 40) near 38
Veeva Systems (VEEV 73) near 68.5
Vipshop Holdings (VIPS 17) near 15.9
W.W. Grainger (GWW 282) near 263
Yandex (YNDX 39) near 38.5
Zendesk (ZEN 48) near 43.5