First and foremost, we hope you and your family have a great Memorial Day weekend. Our office will be closed on Monday (May 28), so your next issue of Top Ten Trader will be emailed after the close on Tuesday (May 29). May your beers be cold and meat be perfectly grilled!
On to the market, the major indexes have had another quiet week, with the S&P 500 up a smidge for the week as we write this, while the Nasdaq is up around 0.8%. More significant than just the small net moves is the lack of movement—this is the second straight week we’ve seen the major indexes trade in tight ranges.
We think this sort of action is constructive, especially as it comes after a couple of strong weeks earlier this month that produced an intermediate-term green light. Moreover, this is the first time since the market’s correction began in late January that we’ve seen a strong move higher not lead to either wild action (as was seen in February) or another sharp selloff (March and early April).
Said another way, we could be looking at a positive change in the market’s character here—instead of big investors flooding the market with supply after a bump higher, they seem to be content to hold and even accumulate shares on dips. Granted, this has been a pre-holiday week, which tends to see less volatility, but overall it’s a positive sign.
In total, then, the setup looks great. We’ve had a tedious three-month correction with multiple retests of the lows (and positive divergences in the broad market) and some bearish sentiment readings (which is a good thing). Then we saw the rally in early May, followed by the recent tightness. Throw in a bunch of stocks that are tightening up near their highs and we certainly have a solid platform to lift off from.
All of that is encouraging, but as I wrote in Cabot Growth Investor this week, at this point we want more than encouragement—we want clear signs that the buyers are taking control. Right now, we’re content to lean bullish, but to really get excited we need to see the major indexes and leading stocks follow through on the upside for a few days. Until then, we’re still seeing a lot of cross currents and rotation (energy stocks are the example du jour). Thus, you should hold your strong stocks but also hang onto some cash and keep laggards on tight leashes.
BUY IDEAS
E*Trade (ETFC 64) has been the strongest brokerage stock by a large margin, with a nice, persistent uptrend since the end of March before pulling back the past three days (likely as interest rates have retreated). Dips to the 25-day line (now nearing 63) would be tempting, with a stop around 59.
Integra Lifesciences (IART 64) staged a breakout in late April, had a big shakeout in early May and has since gone tight. You could nibble here with a stop near 59, or wait for a breakout above 65.5 or so.
Melco Resorts (MLCO 32) has done a lot of bobbing and weaving since the breakout out of its base in mid-April, but this week was encouraging—shares perked back up to their highs on three strong days of buying volume. Like the market, we’d like to see upside follow-through before getting too excited, so a move above 33 would be buyable, with a stop around 30.5.
Refining stocks are always tricky, as solid uptrends can turn into downtrends in short order. Still, just going with what we see, this week’s dip in the sector has set up some nice potential entries. One idea: Phillips 66 (PSX 115), which enjoyed a big persistent run from 98 to 122, had just sunk back below 115 in three days of selling. PSX could still fall further, but we’re OK grabbing a few shares here or on further dips, with a stop around 107.
Wix.com (WIX 85) has been pretty choppy during the past few weeks, but that comes after a big off-the-bottom run in February and March, and the stock is perched near all-time highs. Going forward, a push above 90 that coincides with some upside follow-through in the major indexes would look buyable, using a stop around 82.5. (If you already own some the stock, stick with a stop near 80 for now.)
SELL IDEAS
On the sell side, we have three, including two energy issues and one that got clipped on earnings:
Petrobras (PBR 13)
Pioneer Natural (PXD 187)
Pure Storage (PSTG 21)
SUGGESTED STOPS
Abercrombie & Fitch (ANF 25) near 24.9
Abiomed (ABMD 395) near 325
BeiGene (BGNE 186) near 168
Cheniere Energy (LNG 61) near 58
Continental Resources (CLR 64) near 6
Coupa Software (COUP 51) near 48
Ecopetrol (EC 20) near 20
Energen (EGN 66) near 63.5
First Solar (FSLR 68) near 66
Fortinet (FTNT 60) near 55.5
GoDaddy (GDDY 71) near 64
Guess (GES 24) near 22.5
Insulet (PODD 93) near 84.5
Integra LifeSciences (IART 64) near 59
Melco Resorts (MLCO 32) near 30.5
Netflix (NFLX 353) near 310
Nutanix (NTNX 54) near 50
Oil States Int’l (OIS 35) near 33.5
Okta (OKTA 52) near 42.5
PayPal (PYPL 81) near 74.5
Phillips 66 (PSX 115) near 107
Red Hat (RHT 165) near 156
RingCentral (RNG 73) near 68.5
Semtech (SMTC 45) near 41.5
Splunk (SPLK 114) near 101
Teladoc (TDOC 51) near 43
Transocean (RIG 12) near 11.8
Twilio (TWLO 53) near 45
Urban Outfitters (URBN 42) near 38.5
Wix.com (WIX 85) near 80
WPX Energy (WPX 17) near 16.2
Zendesk (ZEN 56) near 50