It’s been a split market this week. Including this morning’s U.S.-China trade-inspired dip, the S&P 500 is down 0.2% on the week, while the Dow Industrials and NYSE Composite are down about 1%. The intermediate-term trend for these indexes remains up, though all still have overhead to chew through from earlier this year.
But the real action has been in the Nasdaq, which, despite today’s retreat, is up 1.1% for the week and hit new all-time highs yesterday. And individual growth stocks (including a ton of Top Ten names) have dazzled as many of them race up the charts!
Overall, the action keeps us bullish, and as trend followers, we’ll remain so until we see evidence that big investors are getting active on the sell side.
That said, it’s important to keep your feet on the ground. Many stocks are hugely extended to the upside, and there’s growing evidence that investor sentiment is getting giddy (a negative). Thus, we wouldn’t be surprised to see some sharp pullbacks either in the market as a whole, or possibly shakeouts in the hottest areas while money rotates into beaten-down areas. (We’ve noticed the Consumer Staples Fund (XLP), for instance, perk up through its 50-day line for the first time since February.)
On the flip side, most of the hottest stocks in the market just broke out from multi-month structures during the past four to five weeks. The market doesn’t adhere to strict timetables, but four or five weeks usually isn’t enough time for a move to finish up, generally speaking.
Plus, we like that we’re seeing a lot of new leadership in the market—it’s not all later-stage, obvious names (though those are doing well too), but instead many recent IPOs or other stocks that started their overall advances earlier this year.
Long story short, we’re definitely bullish, and we’re not saying to start ditching all your best stocks. But with profits having come quickly, it’s good to remember (a) to take a few partial profits if you’ve been handed a great gain in just a couple of weeks, and (b) to look for solid entry points on the buy side (as opposed to just chasing something up the chart). Otherwise, enjoy the ride, while trailing stops with your winners along the way.
BUY IDEAS
Foundation Medicine (FMI 103) surged out of a flat basing area in mid-May and ran from 85 to 110 (round numbers) in just a couple of weeks before a sharp two-day shakeout back to 95. Now it’s pushing higher again—it could bounce around in this range for a bit, but our guess is that the next big move is up. You can nibble in the low 100s, with a stop down around 90.
It’s had a few false starts, but Grubhub (GRUB 119) has finally kicked into gear, lifting out of a nearly three-month base on solid volume to new highs. We’re OK buying some on this dip, albeit with a stop for new buyers in the 104 area.
Ligand Pharmaceuticals (LGND 193) ran straight up from its lows of 150 in early May to new highs at 195 in mid-May, a powerful breakout from a very long consolidation. Since then it’s had some ups and downs, but net-net, has basically moved sideways to consolidate those gains. You can buy some here with a stop near 175.
Macy’s (M 38) is one of many old-world retailers that showed extreme power during the past month, and is now starting to pull back. We’re OK trying to grab a few shares on dips toward 36, with a stop near the 50-day line (around 32.5).
Nutanix (NTNX 62) broke out from an ascending base structure this week (three pullbacks, each one with higher highs and lows over a few months) on good volume. Moreover, we think the stock’s March liftoff was its coming-out party, so if all goes well the stock should still be relatively early in its overall advance. You can buy some around here, but use a stop near its 50-day line (55).
SELL IDEAS
Fortinet (FTNT 65) has been advancing without a meaningful pullback since last November (!), and now it’s getting a bit out of trend on the upside. If you’ve been riding it, take some off the table here and trail a stop for the rest of your position.
And, again, don’t hesitate to take a couple of chips off the table if you’ve been handed quick gains. A perfect example is Carvana (CVNA 41), which has ripped from 26 to 40 in less than a month since our recommendation! Like many stocks, that move did bring it out of a huge base, so we’re still optimistic longer-term. But it doesn’t hurt to sell a few shares up here and try to ride the rest out for a bigger gain.
As for outright sells, we have five: BeiGene (BGNE 176), Continental Resources (CLR 63), Kirby (KEX 85), Penn National Gaming (PENN 33) and Transocean (RIG 12).
SUGGESTED STOPS
51Job (JOBS 105) near 98
Abiomed (ABMD 440) near 375
Carpenter Technology (CRS 56) near 54.5
Cheniere Energy (LNG 64) near 61.5
Coupa Software (COUP 62) near 53.5
Dexcom (DXCM 98) near 86
Ecopetrol (EC 21) near 20.5
E*Trade (ETFC 64) near 61
Fortinet (FTNT 65) near 58.5
GoDaddy (GDDY 73) near 68
Insulet (PODD 98) near 90
Integra LifeSciences (IART 67) near 61.5
LPL Financial (LPLA 69) near 65.5
Micron Technology (MU 59) near 54.5
Netflix (NFLX 392) near 340
Nutanix (NTNX 62) near 52
Okta (OKTA 52) near 46
Palo Alto Networks (PANW 213) near 196
PayPal (PYPL 85) near 76.5
PBF Energy (PBF 48) near 44.5
Phillips 66 (PSX 115) near 111.5
Red Hat (RHT 172) near 161
RingCentral (RNG 78) near 71
Semtech (SMTC 50) near 45
Serepta Therapeutics (SRPT 101) near 87.5
Shutterfly (SFLY 95) near 85
Splunk (SPLK 115) near 103
Supernus Pharmaceuticals (SUPN 54) near 51
Teladoc (TDOC 60) near 47
Twilio (TWLO 59) near 48.5
Urban Outfitters (URBN 46) near 41.5
Valero (VLO 116) near 113
Wix.com (WIX 102) near 88
Wildhorse Resources (WRD 25) near 24.5
WPX Energy (WPX 18) near 16.9
Zendesk (ZEN 59) near 53