The yellow flags of the past couple of weeks finally hit a breaking point starting late last week, with most indexes and leading stocks hitting a good-sized pothole.
As usual, we’re just sticking with the evidence—right now we continue to lean bullish because most of the evidence is still pointing up: The intermediate- and longer-term trend of most indexes and leading stocks are still pointed up. (The intermediate-term trend is a touch iffy, but the bounce of the past two days has helped on that front.) We’ve also seen sentiment quickly come back down to earth, with last week seeing giant outflows from equity funds and ETFs (often a decent contrarian sign).
On the flip side, the recent dip did bring some abnormal action, with many stocks cracking intermediate-term support; some key sectors (financials and semiconductors) look like garbage; and there aren’t many great-looking entry points.
Right now, our main thought is simply to take things day to day and stock by stock. As mentioned above, we’re still leaning bullish, but given the extremes seen in sentiment and violent down-moves in many stocks, we’re content to cool our heels a bit—holding resilient stocks, but going easy on the buy side—and let the market tell us what it wants to do next.
If the sharp dip is over, there should be plenty of stocks that are providing new and/or follow-on entry points (rebounds from their 50-day lines, for instance). But we’re still tightening stops, too, and could easily turn more cautious if the market/stocks crack further from here.
Last but not least, there will likely be some crosscurrents in the days ahead. Today is the last day of the quarter (window dressing), next week has July 4 stuck right in the middle, and earnings season begins not long after that. Just something to keep in mind as we track the market.
BUY IDEAS
We’re seeing a decent amount of persistent pullback setups, where a stock has run persistently higher for many weeks, and then takes a good-sized, multi-day hit (but doesn’t melt down). Advanced Micro Devices (AMD 15) is a good example, with a fantastic run in May and early June and the recent three-point dip to the 25-day line. We believe the best way to play it is to enter on the way up (maybe a move above 16 or so), with a stop just under 14.
Align Technology (ALGN 344) is another example, with a persistent run to 370 two weeks ago before pulling back as low as 334. A move above 355 would be tempting, but use a stop down in the 320 range if you buy.
G-III Apparel (GIII 46) broke out around 40 and quickly surged to 50 or so after a positive earnings reaction. Now, it’s pulled back for three weeks to its 25-day line. You can nibble here (with a stop near 42) or wait for a rebound back above 48 or so (using a stop just below 44).
Kohl’s (KSS 74) broke out from a beautiful four-month flat base in early June and quickly ran from 68 to 80. It’s been chopping sideways-to-down for a couple of weeks, with its 25-day line having caught up to the stock. You can buy some here, or look for a resumption of the prior advance, buying above 78 with a stop near 71.
Ligand Pharmaceuticals (LGND 206) is a rare bird these days—it actually ripped to new highs this week on excellent volume after receiving a big milestone payment from one of its partners. We’re OK buying a little here or (preferably) on dips of two to four points, with a stop near 185.
WPX Energy (WPX 18) has set up a nice-looking base during the past six weeks or so, gyrating around while the energy sector consolidated. Now it’s creeping back toward its highs. A decisive breakout above 19 would be tempting, with a stop around the 50-day line (near 17.5).
SELL IDEAS
As you’d expect, a number of stocks tripped their stops this week—as always, if you still own them and have profits, you can choose whether or not to give them a little more rope. But because they tripped us out, they’re being sold from our list:
51Job (JOBS 98)
Autohome (ATHM 102)
GoDaddy (GDDY 71)
E*Trade (ETFC 62)
Insulet (PODD 87)
LPL Financial (LPLA 67)
Momo Inc. (MOMO 44)
Penumbra (PEN 140)
Semtech (SMTC 48)
Zendesk (ZEN 55)
SUGGESTED STOPS
Abiomed (ABMD 414) near 380
Baozun (BZUN 55) near
Cheniere Energy (LNG 64) near 62
Chipotle Mexican Grill (CMG 430) near 415
Coupa Software (COUP 62) near 54.5
Dexcom (DXCM 95) near 88
Exact Sciences (EXAS 61) near 58
Fortinet (FTNT 63) near 59
GDS Holdings (GDS 40) near 35
Green Dot (GDOT 73) near 69
HubSpot (HUBS 127) near 118
Integra LifeSciences (IART 66) near 63
Loxo Oncology (LOXO 175) near 158
MongoDB (MDB 50) near 46
Netflix (NFLX 394) near 350
Novocure (NVCR 31) near 28.9
Okta (OKTA 51) near 46.5
Palo Alto Networks (PANW 207) near 197
PayPal (PYPL 84) near 77
RH (RH 142) near 130
Serepta Therapeutics (SRPT 135) near 115
Shopify (SHOP 149) near 140
Shutterfly (SFLY 91) near 85
SVB Financial (SIVB 295) near 286
Supernus Pharmaceuticals (SUPN 61) near 53
Teladoc (TDOC 59) near 51
Twilio (TWLO 57) near 50
Urban Outfitters (URBN 46) near 42.5
Wix.com (WIX 101) near 91
WPX Energy (WPX 18) near 17
ZTO Express (ZTO 20) near 18.5