It’s been a mixed week with lots of volatility, though most indexes are down a bit since Monday. As we write this, the S&P 500 is down about 0.8% for the week, while the Nasdaq is up 0.6%.
Taking a step back, not much has changed during the past month when looking at the market’s overall stance. The intermediate-term trend remains down and the broad market remains generally unhealthy. And from the viewpoint of individual stocks, the action isn’t fantastic—it’s been a generally tough earnings season so far, with even “good” reports bringing out the sellers. And beyond earnings, most stocks that poke out to new highs are quickly sold off, a hallmark of an unhealthy environment.
With all that said, we do think the market’s at an interesting spot for three reasons. First, despite a torrent of worries, bad news, poor earnings reactions and the like, the major indexes are still holding above their correction lows (in February and early April). Second, even as the indexes test these lows, we’re still seeing positive divergences in the broad market (fewer stocks are hitting new lows now than at the prior lows).
And third, because our market timing is based on moving averages (it’s a trend following approach), the fact that the major indexes have chopped lower (as opposed to plunging) has allowed the moving averages to catch up. That means a couple of good up days could actually turn the intermediate-term trend back up.
To be clear, that’s not a prediction; with the trend pointed down, we’re probably more likely to break the lows at some point. But our point is that, despite all the worries, the market isn’t falling apart, so be sure to keep your head out of the sand in case the buyers make a go of it.
Right now, though, we have no changes in our advice—we’re still advising a cautious stance as the market and most stocks are having trouble sustaining much upside.
BUY IDEAS
Coupa Software (COUP 50) has been all over the place in recent days, but that’s not abnormal given that it’s somewhat thinly traded in a tough market. More important to us is that the stock has held its 50-day line and is perking back up toward its highs on good volume. Earnings aren’t out until early June most likely, so we’re OK with a nibble here and a stop just below the 50-day line (near 46).
GoDaddy (GDDY 66) remains very resilient, with the stock hitting a new high in mid-April (when the market bounced off its lows) and is holding those gains in recent weeks (even as the market slides). Earnings are out May 8, so you can either just keep a close eye on it, or (if you’re aggressive) nibble here and try to buy more on a positive earnings reaction. A stop near 60 makes sense if you grab a few shares around here.
Lululemon (LULU 98) has been a rare, persistent gainer in recent weeks, with the stock rising nearly every day since breaking out on earnings in late-March. We don’t advise buying here, especially given the market. But keep your eyes open for a pullback or a quick shakeout (possibly on market weakness)—a dip toward the 25-day line (now at 94.1 but rising quickly) would be tempting, with a stop in the upper 80s.
Not many people are talking about casino stocks these days, but we’re seeing some solid action there, led by Melco Resorts (MLCO 33). The stock broke out in mid-April, and after a modest pullback, shares perked up to higher highs this week after a great monthly update from Macau. If you’re game, you can nibble here with a stop around 29.5. Earnings aren’t out until June.
Palo Alto Networks (PANW 195) continues to set up very well; in fact, the stock actually nosed to new highs on Wednesday before pulling back into its base. Still, PANW is above its 25-day line and looks ready to lead the market’s next upleg. You could nibble here or just wait for a decisive push above 198 or so.
Zendesk (ZEN 53) is one of a handful of mid-cap cloud software firms that continue to resist the market’s downward pull. Shares notched a higher high and higher low in April and, this week, popped to new highs on excellent volume after earnings.
SELL IDEAS
AMN Healthcare (AMN 53) had a picture-perfect chart heading into this week, but today it collapsed on earnings despite a solid report. Obviously, such action is a disappointment to say the least, but our goal in these situations is to make sure a bad situation doesn’t get much worse. We’re going to sell AMN—if you want to sell some but hold some for a bounce, that’s fine, too, as there is some support in this area. But if you do hang on don’t let the loss grow much from here.
Beyond that, we have a handful more sells this week: Floor & Décor (FND 47), BOFI Holdings (BOFI 41), Loxo Oncology (LOXO 121), Match Group (MTCH 35) Michael Kors (KORS 62), New Relic (NEWR 73) and Paycom (PAYC 108).
SUGGESTED STOPS
Abercrombie & Fitch (ANF 26) near 24.5
Abiomed (ABMD 341) near 305
BeiGene (BGNE 182) near 160
Coupa Software (COUP 50) near 46
Energen (EGN 63) near 61
Fiat Chrysler (FCAU 23) near 21
First Solar (FSLR 67) near 64
Fortinet (FTNT 54) near 53
GoDaddy (GDDY 66) near 60
Insulet (PODD 85) near 81
LGI Homes (LGIH 72) near 67
Netflix (NFLX 315) near 285
Okta (OKTA 46) near 40.5
PayPal (PYPL 73) near 70.5
Pegasystems (PEGA 64) near 59.5
Petrobras (PBR 14) near 13.3
Pioneer Natural (PXD 192) near 183
Red Hat (RHT 166) near 152
RingCentral (RNG 70) near 62.5
Semtech (SMTC 41) near 38.5
Splunk (SPLK 108) near 95
Teledoc (TDOC 41) near 40.5
Twilio (TWLO 44) near 38
Urban Outfitters (URBN 39) near 37
Wix.com (WIX 84) near 76
Zendesk (ZEN 53) near 46.5