In our view, the market has had a constructive week. Last Friday’s trade war-related plunge threatened to crack the nascent rally this week, but instead, the buyers have been active, scoring higher-volume gains Tuesday and Thursday. As we write this, the S&P is up 2% and the Nasdaq up 2.7% on the week.
The action of leading stocks has been generally encouraging, too, with many holding support near their 50-day moving averages and bouncing nicely (though many are giving back some of those gains today). Overall, we see a bunch of stocks that are about five weeks into relatively early-stage base-building efforts—they might not be ready to blastoff just yet, but so far, so good.
It’s also a plus that worsening investor sentiment (numerous measures show bullishness at multi-month lows) to go along with the positive broad market divergences that occurred when the market retested its February low (fewer new lows, etc.).
But while there are many reasons for optimism, there’s not yet enough evidence to conclude the intermediate-term trend has turned up. This morning’s market bounce brought most indexes right up their downtrending 50-day moving averages, which brought out some sellers. That’s not a huge deal (such action isn’t abnormal), but we’re going to need to see the major indexes get above their 50-day lines (and, preferably, for the 25-day line to turn up) before getting aggressive on the buy side.
Thus, we might nudge up our Market Monitor a notch or two come Monday, but we’re still mostly in the neutral camp until the buyers prove they’re back in control.
On the flip side, now’s a good time to evaluate your portfolio and look for stocks that (a) suffered some major selling during the March slide and (b) haven’t been able to bounce at all. Selling them (or keeping tight stops in place) makes sense.
Overall, what we’re really interested in is what happens from here. We’ve had two-plus-months of sloppy-to-down action, lots of bad news, a retest of the lows and a decent-looking lift. Now the question is whether the buyers can truly retake control—or whether this nascent rally runs into another round of major selling pressure. We’ll be watching.
BUY IDEAS
Coupa Software (COUP 47) has had a nice persistent run higher out of a big post-IPO base and then pulled back gradually to its 50-day line during the past month. With the stock finding some good-volume buying Thursday, we’re OK with a small position here, albeit with a stop just below the 50-day line (near 44).
GoDaddy (GDDY 62) is a bit sloppy, but its pullback to its 50-day line during March was normal and it’s found some volume support in recent days. It’s one to watch, and if you want to start a position here, you can. Just be sure to use a stop near 58 to protect yourself in case the stock or market suffer another leg lower.
Loxo Oncology (LOXO 125) is very volatile, but the overall chart looks intriguing—it had a very nice run from the market’s February low to its March high (including a ton of big-volume buying), and while the pullback was sharp (136 to 110), the stock held its 50-day line. And now it’s spiked about two-thirds of the way back to its prior highs! If you’re game, you could nibble here or on dips, with a stop around 111.
Pegasystems (PEGA 61) has set up a nice five-week zone, which sits inside of a larger multi-month base that’s been forming since last May. You could nibble here with a stop near 58, though we’re more interested in simply watching it—a breakout in the days or weeks ahead above 63.5 should be very bullish.
Red Hat (RHT 156) had some wild action around its earnings report in late-March, but that was mostly due to the market caving in. It, like most leading growth stocks, held its 50-day line and saw some good-volume buying this week as it registered new closing highs. We’re OK buying a little here or on dips, with a stop around 144.
SELL IDEAS
We have just one sell this week: Zillow (Z 48), which plunged through its stop today on huge volume.
We have also tightened most of our existing stops in case the market’s rally runs into trouble.
SUGGESTED STOPS
Abercrombie & Fitch (ANF 29) near 24
Abiomed (ABMD 295) near 265
Baozun (BZUN 46) near 41.5
BeiGene (BGNE 167) near 150
BOFI Holdings (BOFI 41) near 38
Coupa Software (COUP 47) near 44
Fortinet (FTNT 56) near 51
GoDaddy (GDDY 62) near 58
Harris (HRS 162) near 157
HCA Healthcare (HCA 96) near 95.5
HubSpot (HUBS 110) near 103
Insulet (PODD 85) near 79
Kohl’s (KSS 62) near 61
Loxo Oncology (LOXO 125) near 111
Match Group (MTCH 45) near 40.5
Michael Kors (KORS 65) near 62
Old Dominion (ODFL 145) near 141
PagSeguro (PAGS 34) near 32
Paycom (PAYC 109) near 102
Pegasystems (PEGA 61) near 58
Qualys (QLYS 77) near 71.5
Red Hat (RHT 156) near 144
Smart Global Holdings (SGH 45) near 42
Splunk (SPLK 103) near 93
TD Ameritrade (AMTD 59) near 57
Teledoc (TDOC 40) near 39
Twilio (TWLO 39) near 35
Veeva Systems (VEEV 72) near 68.5
W.W. Grainger (GWW 280) near 270
Zendesk (ZEN 48) near 44.5