The major indexes have seen some gaps up, gaps down and intraday wiggles this week. But overall, there hasn’t been much movement—as of early this morning, the S&P 500 and Nasdaq are down a bit less than 0.5% on the week.
Such digestive action following the recent advance is normal and, over time, should be healthy. The major indexes had a great week and a half run from their lows of May 3 through their highs this Monday morning; the Nasdaq ran up as many as 450 points during that time, while the S&P leapt 140 points. Thus, a rest was expected, and so far, we haven’t seen any abnormal selling.
It’s a similar story with individual stocks, with many spiking with the market (and/or on earnings) during late April or the first part of May. And most have held onto the vast majority of their gains in recent days.
In other words: So far, so good. By our measures, the intermediate-term trend is still pointed up for the indexes and most stocks, and thus, we continue to lean bullish.
Going forward, we really want to see some upside follow through to conclude this rally is the real McCoy. If we happen to see a couple of big selloffs from here, it would almost certainly call into question the rally’s health. Conversely, some strong buying action (maybe after a few more days of consolidation) would go a long way toward putting a nail in the coffin of the market’s three-month correction.
But you know us—we like to just take it day to day. Right now, the green light from our intermediate-term model remains in effect and, while they’re not powering ahead, most stocks are in good shape. We don’t advise being fully invested—a cash position in the 25% to 35% range makes sense—but with much of the evidence bullish, it’s OK to take some stabs at a few stocks (either on powerful breakouts or, if a stock has already broken out, on dips), set your loss limits and then see if the bulls can resume their buying spree in the days ahead.
BUY IDEAS
Autohome (ATHM 105) has been trending choppily higher since late January, which is a great sign of relative strength given the market’s action. Then, after going mostly sideways during the market’s leg down in April/early May, ATHM lifted to new highs following earnings. It’s hesitated since then, and we’re OK buying some around here, with a stop near 94.
Cheniere Energy (LNG 62) lifted to new highs on great volume two weeks ago following earnings, and, like most stocks, has traded in a tight range on light volume. You could nibble here or (preferably) on dips with a stop in the 57 to 58 range.
Grubhub (GRUB 104) has been basing now for nine weeks, and it could easily take more time to rest after its huge October-March advance. That said, this consolidation has seen some great volume support (including its snapback from a one-day earnings dip) and the story remains excellent. It’s not a Buy here, but a big-volume push above 107 or so would be enticing to start a position, with the idea of buying more if it can then push above 112. Keep an eye on it.
Netflix (NFLX 325) etched higher highs and higher lows during the market’s correction, and while the recent push toward its mid-April high was on light volume, shares have begun to tighten up. You could buy a little here with a tight stop just below 300, though we’d prefer to take a stab at NFLX on the way up—a push above 340 would be highly bullish, for instance, and you could use a stop near 313 if you buy it on that breakout.
NovoCure (NVCR 29) broke out at 23 in mid-April and soared to 30 on Monday of this week before pulling back on modest volume. If you’re game, you could look for dips toward the 25-day line (now near 27 and rising) to take a position, with a stop near 24.
SELL IDEAS
First off, as a general statement, don’t forget to book some partial profits if you’re gains are, say, 1.5 to 2.0 times what you initially risked. (If your loss limit was five points below your initial purchase, consider selling one-third of your shares if you’re up seven to 10 points, that sort of thing.) Many energy stocks and refiners could be ripe for partial profits after their recent pops, for instance.
As for outright sells, Pegasystems (PEGA 62) and InterXon (INXN 64) are being kicked to the curb today as both are acting heavily even as the market hangs in there.
SUGGESTED STOPS
Abercrombie & Fitch (ANF 27) near 24.9
Abiomed (ABMD 386) near 315
BeiGene (BGNE 192) near 165
Coupa Software (COUP 51) near 47.5
Ecopetrol (EC 22) near 20
Energen (EGN 69) near 62
First Solar (FSLR 72) near 66
Fortinet (FTNT 59) near 54.5
GoDaddy (GDDY 71) near 62.5
Insulet (PODD 88) near 82
Melco Resorts (MLCO 31) near 29.5
Netflix (NFLX 325) near 298
Oil States Int’l (OIS 38) near 33.5
Okta (OKTA 49) near 42
PayPal (PYPL 81) near 73
Petrobras (PBR 16) near 14.5
Pioneer Natural (PXD 212) near 189
Red Hat (RHT 162) near 154
RingCentral (RNG 78) near 68
Semtech (SMTC 44) near 40
Splunk (SPLK 115) near 98
Teledoc (TDOC 49) near 41.5
Twilio (TWLO 54) near 44
Urban Outfitters (URBN 43) near 38.5
Wix.com (WIX 89) near 79
Zendesk (ZEN 56) near 49