The theme of this week has been selling, as big investors came back from the beach and, after a decent Tuesday, have been selling leading stocks since. Most of the weakness has been concentrated in the Nasdaq (down 1.9% on the week as we write this), though the S&P 500 is also down 0.8%. There was a fair amount of rotation as well—the Dow Industrials and sectors like financials and transports are mostly flat on the week.
So where do we stand now? At this point, the evidence remains bullish—the intermediate-term trends are pointed up, with even the Nasdaq (which is the weakest major index in the short term) still north of its 50-day line (currently around 7,820). And, when looking at a ton of leading, Top Ten-type stocks, the vast majority haven’t shown any abnormal action; in most cases, we see big moves up during the past four to five weeks, followed by a sharp three-day decline.
Now, that doesn’t mean we’re complacent here. We’re open to anything, including the possibility that the market is beginning the much ballyhooed September-October decline; that the weakness in emerging market stocks and currencies is “catching up” to the leaders; or that we’re ready for a rotation out of growth stocks and into other areas.
But we’ll have to see more abnormal action—such as a break of the 50-day lines in the major indexes, or another couple days of heavy-volume selling in many leaders—to conclude we’ve seen a character change in the market.
To be clear, that doesn’t mean we’re pound-the-table bullish here. In fact, short term we wouldn’t be surprised if growth stocks continued to consolidate and rest after their recent runs. Taking a couple of partial profits and holding a little cash is fine by us.
As always, though, we go with the evidence, and despite this week’s hiccup, most of the evidence is pointed up. Hence, we remain bullish.
BUY IDEAS
CarGurus (CARG 49) has been sliding since its big earnings gap in early August, but it’s still in fine shape, about four points above its 50-day line (near 44) and we’ve seen some decent-volume signs of support recently. If you don’t own any, you could start a position here with a stop around 43.5, or wait for a push above 50.5 or so with a stop near 45.
Match.com (MTCH 52) has had a couple of shakes lower since its earnings gap (and follow-through) in August, but has bounced back each time. It’s not a perfect entry point, but we think you can start with a small position here and a stop around 46.5, and look to piece your way into it should it head higher.
Michael Kors (KORS 73) busted loose from a long base on earnings in early August, rallying from its breakout point near 70 to 76 within a couple of weeks. Now it’s consolidated for two weeks, touching its rising 25-day line (near 72) in the process. You can buy some here with a tight stop near 69, or wait for a push above 74.5 or so, with a stop around 70.
SELL IDEAS
First off, don’t forget to take some partial profits in a name you’ve owned a few weeks and it’s been straight up since then. MongoDB (MDB 81) is one example, with the name rallying from the mid-50s in early August to north of 80 this week, with the help of a well-received earnings report. Sell a third or so, and try to hold the rest through its next pullback.
As for outright sells, we have three this week: DocuSign (DOCU 59), Spotify (SPOT 179) and USANA Health (USNA 125).
SUGGESTED STOPS
CarGurus (CARG 49) near 43
CenturyLink (CTL 22) near 20.4
Chart Industries (GTLS 75) near 71
Chipotle Mexican Grill (CMG 482) near 462
Coupa Software (COUP 78) near 65.5
Darden Restaurants (DRI 120) near 110.5
Etsy (ETSY 48) near 41.9
Greenbrier (GBX 57) near 55.5
Green Dot (GDOT 86) near 79
Ingevity (NGVT 101) near 93.5
Inogen (INGN 264) near 220
Lululemon (LULU 152) near 130
Michael Kors (KORS 73) near 69
MongoDB (MDB 81) near 62
Novocure (NVCR 47) near 37
Okta (OKTA 74) near 54
PayPal (PYPL 90) near 81
Roku (ROKU 66) near 52.5
SiteOne Landscape (SITE 90) near 86
Sonic Corp. (SONC 37) near 33.5
Square (SQ 91) near 75
Teladoc (TDOC 78) near 62.5
TransUnion (TRU 75) near 72.5
Twilio (TWLO 84) near 68.5
Vertex Pharmaceuticals (VRTX 179) near 172.5
VFC Corp. (VFC 90) near 88.5
Wayfair (W 139) near 116
Workday (WDAY 147) near 139
Zendesk (ZEN 69) near 61.5