It’s been a relatively quiet week for the major indexes, which came into today’s trading tilted a bit negative but, with this morning’s rally, are back up toward breakeven on the week, give or take.
Overall, most of the evidence remains bullish, so we’re bullish, too. That said, there are certainly lots of crosscurrents and a few yellow flags out there as well.
The classic example of this is the Dow, which coming into today had slipped eight days in a row (losing as many as 1,000 points during that time), even as the Nasdaq and S&P 600 SmallCap are perched near their highs. In fact, the NYSE Composite, which is included in our intermediate-term market timing model (the Dow isn’t), closed yesterday below its 200-day line!
Of course, many of you might say, “The Dow and NYSE Composite don’t affect me because I’m investing in the leaders, which Top Ten identifies.” That’s correct, and the reason why we don’t specifically trade based off of secondary evidence like divergences and whatnot.
However, it’s good to be aware of it because when so many investors are rowing in different directions (and when many sentiment measures are at multi-month extremes) there’s a greater chance of a sharp shift—be that a pullback, a rotation (which we’re seeing today), or just some volatility. Indeed, we have seen some air come out of a handful of fast movers during the past few days.
Again, none of that means we’re predicting doom; we’re still bullish, and the recent selling in certain stocks doesn’t look abnormal at all. But as we wrote last week, be sure to keep your feet on the ground, looking for decent entry points, honoring stops, taking some partial profits as opportunities arise and tightening stops on losers and laggards.
On the buy side, we’re not seeing a ton of great entry points right now, but that can change quickly with shakeout moves or some tight trading (if it happens). If you really want into a stock that’s extended, that’s fine, but it’s probably best to start small and try to build a position if it works out.
BUY IDEAS
Most financial stocks have been weak lately, but E*Trade (ETFC 65) has stood out—following its persistent rally in April and most of May, the stock has moved straight sideways for the past four weeks. You could nibble here or wait for a push above 66 on good volume, and use a stop near 62.
For what it’s worth, SVB Financial (SIVB 315) has a very similar pattern within the financial group. As with ETFC, you could nibble here (stop just below 300) or wait for a push above 327 on good volume (stop around 308).
Illumina (ILMN 285) is a big-cap way to play the growing strength seen in the medical sector; shares broke out in early May and have pushed higher with little in the way of dips so far. With the 25-day line nearing 280, you can aim to buy on dips of a few points, with a stop near the 50-day line (around 265).
Macy’s (M 39) doesn’t get the blood pumping, but maybe it should—the stock had a great-volume run from mid-May to early June and has now been up and down for a couple of weeks. Another dip of a point or two would be enticing, with a stop around 34.
Penumbra (PEN 152) broke out in early May around 128 and ran to 167 within a few weeks. Not surprisingly, it’s been pulling back since and is now nearing its 50-day line (which is at 146.4). If you’re game, you could take a stab at it here with a tight stop near 143. Or you could wait for some rebound—say, above 156—and use a stop at 146.
Turtle Beach (HEAR 21) remains a wild child and is extraordinarily volatile, but we continue to like the look of the chart—it’s been pulling back for a few days, and could be on its way to testing the 25-day line (now around 19). You could nibble (small positions only!) on dips, with a loose stop near 15.5.
SELL IDEAS
Serepta Thereapeutics (SRPT 145) went ballistic this week after positive test results, rising about 40 points on Tuesday. If you own some, we’d probably book some partial profits here
Foundation Medicine (FMI 137) got bought out this week, causing the stock to soar above 135, up from our recommended buy range around 90 at the end of May. If you own some, we’d take the profit.
In addition to FMI and SRPT, we have eight other outright sells this week: Carpenter Technology (CRS 57), PBF Energy (PBF 45), Phillips 66 (PSX 114), PTC Therapeutics (PTCT 36), Red Hat (RHT 147), RingCentral (RNG 73), Splunk (SPLK 106) and Valero (VLO 113).
If you have good profits in any of these names (except RHT, which is cratering on earnings), you can sell some/hold the rest if you choose. But we’d favor taking action given them breaking down and tripping stops.
SUGGESTED STOPS
51Job (JOBS 104) near 98.5
Abiomed (ABMD 432) near 379
Alibaba (BABA 201) near 192
Autohome (ATHM 114) near 105
Cheniere Energy (LNG 68) near 62
Coupa Software (COUP 62) near 54
Dexcom (DXCM 101) near 88
E*Trade (ETFC 65) near 62
Fortinet (FTNT 64) near 59
GoDaddy (GDDY 73) near 68.5
Insulet (PODD 97) near 90.5
Integra LifeSciences (IART 67) near 62.5
LPL Financial (LPLA 69) near 66
Micron Technology (MU 58) near 55.5
Netflix (NFLX 413) near 350
Novocure (NVCR 31) near 28.5
Nutanix (NTNX 56) near 52
Okta (OKTA 51) near 46.5
Palo Alto Networks (PANW 208) near 197
PayPal (PYPL 85) near 77
Penumbra (PEN 151) near 143
Semtech (SMTC 51) near 46.5
Serepta Therapeutics (SRPT 145) near 112
Shutterfly (SFLY 95) near 85
Supernus Pharmaceuticals (SUPN 57) near 52
Teladoc (TDOC 61) near 50
Twilio (TWLO 56) near 49.5
Urban Outfitters (URBN 46) near 42
Wix.com (WIX 104) near 90
WPX Energy (WPX 18) near 16.9
Zendesk (ZEN 55) near 53.5
ZTO Express (ZTO 19) near 18.5