The market’s had a wild week, as early on it continued last week’s decline, driving some indexes (including the S&P 500) back down to their rising 200-day lines and hitting some of the market’s leading stocks hard. The rally yesterday was helpful, though this morning’s reversal is far from ideal.
Looking at the charts, we think this week’s dip-and-partial-recovery is an encouraging sign, one of many the market has flashed during the past month or so.
That said, like the prior encouraging signs (many stocks building normal bases, positive divergences in the broad market as we retested the lows, etc.), we still need to see much more. For the overall market, our measures still tell us that the intermediate-term trend is down, and for individual stocks, we still have yet to see many get going.
All told, our title from Monday’s issue (Ready and Waiting) still encapsulates our thoughts: There are some setups out there, and the market has shown an ability to hold key support. But until we actually see the buyers take control, it’s best to remain cautious, which means holding plenty of cash and keeping new buys on the small side.
Looking ahead, the plan is simple. If the market can rally from here, there’s a decent chance our intermediate-term market timing indicator will flash green within a few days. While we wouldn’t go “all in” on such a signal, it would definitely have us taking a more constructive stance.
If, however, the latest bounce in the indexes fails again, we’ll stay cautious, and could even turn outright defensive if many potential leading stocks and the major indexes break down. Right now, we’ll just stick with our current stance and, as always, follow the market’s lead.
BUY IDEAS
After a giant run from 20 in February to 29 in March, you’d think that Etsy (ETSY 29) would have started to correct given the market’s action. But instead, the stock remains very resilient, and now its 50-day line (at 27 and rising) is beginning to catch up. A test of that key moving average could be in store, but the stock’s overall action is hard to ignore—we’re OK nibbling here or on dips, with a stop around 26.
Floor & Décor (FND 55) had a big intraday dip on Wednesday due to the market and an analyst’s downgrade, but it’s bounced back nicely. A dip of a point or two would be tempting, with a stop at 50.
HealthEquity (HQY 66) took the market’s volatility this week in stride, pulling back a couple of points only briefly before bouncing off its 25-day line. It’s a bit thinly traded and wiggly, but the buyers are in control here. You can buy a little here or on dips to 64, with a stop around 60 (just below the 50-day line).
Our patience is paying off with Michael Kors (KORS 69), which is resuming its uptrend; shares have had a very good month and the stock punched out to new closing highs this week. Buying breakouts isn’t a great strategy in this environment, but a pullback of a couple of points would mark a solid entry, though we’d use a tight stop near 64.5.
Okta (OKTA 42) looks like it wants to get going if the market gets out of its own way. The stock leapt to new highs above 44 on excellent volume on Monday, was quickly yanked down to 40 by the market, and has since snapped back to 43. You could nibble around here if you’re game, or look for a modest dip of a point or two, and use a stop just below the 50-day line (now at 39 and rising).
We still like the look of most oil stocks, with our Top Pick from a couple of weeks ago, WPX Energy (WPX 17), acting very well. Given the market, we could easily see the group take a breather, so if you don’t own any, try to sharp shoot a small position on dips of 50 cents or so, with a loose stop near 15.
SELL IDEAS
With the market’s movement and with earnings season, we have a number of sells this week: Alcoa (AA 52), Baozun (BZUN 43), Harris (HRS 158), HCA Healthcare (HCA 96), HubSpot (HUBS 107), Old Dominion (ODFL 133), PagSeguro (PAGS 34), Qualys (QLYS 77), TD Ameritrade (AMTD 58), Veeva Systems (VEEV 71) and W.W. Grainger (GWW 277).
SUGGESTED STOPS
Abercrombie & Fitch (ANF 26) near 24.5
Abiomed (ABMD 298) near 272
BeiGene (BGNE 174) near 155
BOFI Holdings (BOFI 41) near 39
Coupa Software (COUP 48) near 45.5
Floor & Décor (FND 55) near 50
Fortinet (FTNT 55) near 52
GoDaddy (GDDY 64) near 59.5
Insulet (PODD 86) near 81
LGI Homes (LGIH 71) near 66
Loxo Oncology (LOXO 132) near 118
Match Group (MTCH 46) near 42
Michael Kors (KORS 69) near 64.5
New Relic (NEWR 71) near 69
Okta (OKTA 42) near 38.5
Paycom (PAYC 112) near 105
PayPal (PYPL 75) near 70.5
Pegasystems (PEGA 61) near 59
Petrobras (PBR 14) near 13.3
Red Hat (RHT 162) near 148
RingCentral (RNG 65) near 61
Semtech (SMTC 40) near 38
Splunk (SPLK 101) near 94.5
Teledoc (TDOC 43) near 39.5
Twilio (TWLO 42) near 37.5
Urban Outfitters (URBN 40) near 36.5
Wix.com (WIX 81) near 75
Zendesk (ZEN 48) near 45.5