The market remains extremely volatile and news-driven on a daily basis, with tariff shenanigans repeatedly in the headlines. That said, nothing much has changed with our market timing indicators. The intermediate-term trend is still pointed down and the broad market remains unhealthy, so we continue to advise a cautious stance, with only small new buys and plenty of cash on the sideline.
Our focus remains mostly on capital preservation, not on trying to make a few bucks on each market swing, which is like picking up pennies in front of bulldozers.
What’s interesting is that, despite all the news and worries of recent days, the indexes have actually found some support during the past week and a half, with the major indexes retesting and holding their February lows. Plus, we continue to see a positive divergence in the broad market—the maximum number of stocks hitting new lows has been far lower during the recent down leg than during the February swoon.
We’ve even seen a little potential new leadership poke its head up this week as the market got off its knees for a couple of days.
But, while these are positives, they’re just first steps. We still need to see the buyers actually retake control before becoming more constructive on the market. In the near-term, that would probably mean a rally to 2,750 on the S&P 500 and 7,325 or higher on the Nasdaq.
What about the possibility of further downside and turning outright defensive? It’s certainly possible this correction, which is a bit more than two months old, has more to go. Assuming you’re already in a cautious stance, though, we advise taking things on a stock-by-stock basis.
Said another way, if you’re already 40% or 50% in cash (or whatever you feel is “cautious”), we don’t advise throwing out another handful of stocks based on a wiggle or two in the market—just set some prudent mental stops and honor them.
One last point: It’s at this time when the news headlines are dramatic that you must try to focus on the market itself. We can almost guarantee that, whenever the market does bottom, the news is going to be horrible. So don’t let the news flow impact your decisions—just stick to the action of the indexes and leading stocks.
BUY IDEAS
Axon Enterprises (AAXN 42) remains very impressive, as it burst out of its brief consolidation on Tuesday and has held those gains since. It’s tricky to buy a stock this strong while the market is still in a correction, but it’s also hard to ignore AAXN’s relative strength. You can nibble here or on dips of a point or two, but use a loose stop in the 37 to 38 range.
BOFI Holdings (BOFI 40) had a nice, persistent run from mid-December through mid-March before being yanked down by the market. This week, though, it found good support near its 50-day line, its first test of that key trend line since getting going. Buying a little here or on dips of a point or so could work, with a stop in the 37.5 range.
Continental Resources (CLR 59) looks like it wants to get moving if the market allows it—the stock broke out of its base yesterday on above-average volume. Breakouts in down markets aren’t good bets, but the relative strength is obviously impressive. Hold on if you bought some, and if you didn’t, you can nibble here or on dips, with a stop in the 54 area.
Michael Kors (KORS 65) had a big run through late January, then corrected with the market in early February and has moved mostly straight sideways above 60 since. Now it’s changing character—KORS has pushed above its 50-day line in decent volume, and it helps that retail stocks remain resilient. We’re OK with a nibble here and a tight stop near 61.5.
Palo Alto Networks (PANW 193) certainly has the makings of a liquid leader, having shown tremendous power during its February/early March advance, holding above its 50-day line during the market’s recent slide and then, this week, shooting to new highs on excellent volume. It’s not a terrific buy right here, but pullbacks of a few points could provide an opportunity to start a position. If you buy, use a loss limit of around 10% or so.
Veeva Systems’ (VEEV 72) pullback during the past month has been relatively orderly and not out of the ordinary given its prior huge-volume run. If you really want in, you could buy a little here, though we’d prefer to buy it up a bit—possibly over 74.5 or so—which would be proof that buyers are arriving. If you do enter, a stop near 68.5 makes sense.
SELL IDEAS
Abercrombie & Fitch (ANF 27) has been a solid performer since our initial recommendation in mid-January, and it’s been pushing higher on solid volume this week. If you have a good profit, we think it’s OK to take partial profits here and trail a stop (currently around 22.5) for the rest of your position.
As for sells, the following stopped us out: Lumentum (LITE 60) Netflix (NFLX 294), New York Times (NYT 24), Ollie’s Bargain Outlet (OLLI 60), TAL Education (TAL 35), Vipshop Holdings (VIPS 17) and Yandex (YNDX 40).
Some of these stocks kissed their stop and then rallied, so if you still own some, you can hang on. But we’ll follow the system and list them as sells.
SUGGESTED STOPS
Abercrombie & Fitch (ANF 27) near 22.5
Abiomed (ABMD 290) near 263
Baozun (BZUN 46) near 40.5
BeiGene (BGNE 163) near 148
BOFI Holdings (BOFI 40) near 37.5
Coupa Software (COUP 46) near 43.5
Fortinet (FTNT 55) near 50.5
GoDaddy (GDDY 61) near 58
Harris (HRS 163) near 156
HCA Healthcare (HCA 97) near 95.5
HubSpot (HUBS 111) near 103
Insulet (PODD 85) near 78.5
Kohl’s (KSS 65) near 61
Loxo Oncology (LOXO 112) near 109
Match Group (MTCH 42) near 39.9
Michael Kors (KORS 65) near 61.5
Old Dominion (ODFL 142) near 140
Paycom (PAYC 108) near 101
Pegasystems (PEGA 62) near 58
Qualys (QLYS 75) near 71
Red Hat (RHT 150) near 143
Splunk (SPLK 99) near 92.5
TD Ameritrade (AMTD 58) near 56.5
Teledoc (TDOC 40) near 38.5
Veeva Systems (VEEV 72) near 68.5
W.W. Grainger (GWW 292) near 267
Zendesk (ZEN 46) near 44
Zillow (Z 53) near 50.5