The market’s action this week was a generally positive one if you’re a bull. Following some abnormal action during the prior two weeks, growth stocks bounced nicely this week, and it was good to see the Nasdaq (up 1.1% for the week as we write this) and small-caps (up 1.9%) lead the charge (S&P 500 is up about 0.4%).
Moreover, we’re impressed with the number of solid earnings gaps up we’ve seen. Obviously, there have been some duds, too, but this hasn’t been the “gap everything down no matter how good the news” environment that we occasionally see. Thus, it’s been an encouraging week.
But has the week changed the overall outlook? Not quite. By our measures, the intermediate-term trend is still basically neutral, especially when looking at growth-oriented indexes like the Nasdaq and small- and mid-caps. Of course, a good day or two from here would change that, but so would a bad day or two.
Based on the action of leading stocks this week, there’s reason for hope, and we might nudge our Market Monitor back up a notch. But our main thought is to be patient and let the market find its way. While clearly not super weak, we’re seeing rotation and news-driven moves on a nearly daily basis—one day growth stocks bounce well, the next, they’re sold off while financials and consumer staples do well.
Plus, even this week, we saw a fair number of stocks crack support or otherwise meltdown on earnings or other news.
All told, for much of the market right now, it’s relatively trendless, with some good days followed by bad days, and with earnings season causing further rotation and sudden moves. None of that is a reason to be bearish or super cautious, but it’s important to pick your spots on the buy side, looking for fresh leadership and aiming to buy on dips. On the flip side, continue to honor your stops and take some partial profits when you get them.
BUY IDEAS
Carvana (CVNA 45) has earnings out next Wednesday (August 8), so buying a bunch here is a crapshoot. But the setup is very nice—the stock looks set to close four weeks near the same level (usually a sign of accumulation) and didn’t even touch its 50-day line during the growth stock retreat in recent days. You can nibble ahead of the report if you want, or just keep it on your watch list and see the reaction; a bullish pop would be enticing.
Illumina (ILMN 333) lifted from a base in early May and has tested its 50-day line twice since, including on Monday of this week. But the stock has soared back to new highs following a fantastic quarterly report. Dips to 325 or below would be interesting; if you buy, a stop at 300 makes sense.
SiteOne Landscape (SITE 89) has had a wild few weeks, but we’re intrigued by (a) its sharp slide with all growth stocks in recent days, (b) the huge earnings dip and turnaround on Wednesday and (c) the quick snapback since. We prefer tighter charts in most cases, but if you’re game, we’re OK buying a little around here with a stop around 84.
Trex (TREX 78) staged a big earnings gap on Tuesday, soaring from 64 to 78. It’s held its gains since then, though most earnings moves of late have seen some backtracking. Thus, you could consider grabbing some shares on dips of two or three points, with a stop around 69.
SELL IDEAS
Despite the up week for the market, we have another batch of sells this week as many stocks tripped their stops earlier in the week or otherwise broke down on earnings. Some of these have snapped back, so if you still own them, you can give them a little rope. But the following will be in our sell section in Monday’s issue:
Chipotle Mexican Grill (CMG 462)
Nutanix (NTNX 50)
Kohl’s (KSS 72)
Shake Shack (SHAK 57)
TripAdvisor (TRIP 53)
Ultragenyx (RARE 75)
Weight Watchers (WTW 91)
WPX Energy (WPX 19)
SUGGESTED STOPS
Coupa Software (COUP 61) near 58.5
Etsy (ETSY 41) near 38
Grand Canyon Education (LOPE 118) near 114
Green Dot (GDOT 79) near 75
Inogen (INGN 210) near 192
Lululemon (LULU 125) near 117
Macy’s (M 39) near 36.5
MongoDB (MDB 56) near 51.5
Novocure (NVCR 35) near 33
Okta (OKTA 52) near 48
PayPal (PYPL 85) near 79.5
Roku (ROKU 46) near 41.5
SiteOne Landscape (SITE 89) near 84
Sonic Corp. (SONC 35) near 32.9
Spotify (SPOT 178) near 172
Square (SQ 69) near 62
Teladoc (TDOC 64) near 56
TransUnion (TRU 73) near 70
Twilio (TWLO 61) near 55
Vertex Pharmaceuticals (VRTX 175) near 165
Wayfair (W 114) near 105
Workday (WDAY 128) near 124.5