It’s been a solid week for the major indexes, with the S&P 500 (up 1.2%) and Nasdaq (up 1.6%) both up a good amount. Interestingly, the S&P 600 Small Cap, which had been leading for most of the past few months, is beginning to lag a bit. But from an overall viewpoint, most major indexes are 1.5% to 3% above their respective 50-day lines, so the intermediate-term trend remains up.
As for leading stocks, we saw a couple more shots across the bow for that group, and there’s a name or two that is flashing what we would classify as short-term yellow flags. We still think some further wobbles among certain stocks and sectors are possible as we work off the big gains seen in August and because of the continued news-driven environment (trade, etc.).
Still, taking a step back, we have seen very little in the way of abnormal action, either among the major indexes or leading stocks. If that changes, then we’ll change our stance, but until then we remain mostly bullish.
We do think it’s fair to say that the market remains relatively divergent. Some areas, like leading growth stocks, continue to act well. Some, like financials and industrials, are doing OK, but mostly chopping sideways. And some, like chip and emerging market stocks, look iffy, though a late-week rally has helped.
As we’ve written before, we’re not complacent at all—maybe this is the start of a “real” correction or sharp rotation of some sort. But at this point, there’s simply not enough evidence to support that. In fact, we like the reasonable rests in some leaders during the past two weeks; if it continues, we’re likely to see some solid follow-on buy points.
All in all, then, we’re still positive, though we still believe it’s important to pick your spots, focus on what’s working and, as a reminder, take some partial profits on the way up.
BUY IDEAS
Alteryx (AYX 61) is one of many strong mid-sized cloud software stocks. It gapped up in early August, held firm for a couple of weeks and has pushed to new highs on solid volume. Dips of a point or two would be tempting, with a stop around 52.
While chip stocks have been all over the place, Semtech (SMTC 59) has remained very proper following its big earnings move two weeks ago. If you don’t own any, we’re OK picking up some shares in this range (57 to 60) with a stop near 52.
SiteOne Landscape (SITE 92) hasn’t been leading the way, but it’s set up a nice structure since mid June, with its swings become less volatile as time has passed. You could nibble here, but we’re more interested in playing a powerful breakout above 95 or so.
Williams Sonoma (WSM 68) gapped up on monstrous volume in late August, and has since dilly-dallied on light volume, which looks like a solid setup. A push above 70 would be intriguing, with a stop near 63.
SELL IDEAS
We’re seeing more and more stocks on which, if you haven’t done so yet, you can book partial profits—Advanced Micro Devices (AMD 31), Carvana (CVNA 63) and Inogen (INGN 285) are three examples. As a reminder, this isn’t a bear call—we’d still hold most of your shares—but feeding a couple of ducks while they’re quacking is often a good idea, while trying to play out the remainder for a bigger move.
As for outright sales, we’re going to let go of Sonic (SONC 36) and TransUnion (TRU 76), taking modest profits and looking elsewhere.
SUGGESTED STOPS
CarGurus (CARG 52) near 45
CenturyLink (CTL 23) near 20.6
Chart Industries (GTLS 78) near 73
Chipotle Mexican Grill (CMG 491) near 465
CF Industries (CF 51) near 47.5
Coupa Software (COUP 80) near 67.5
Darden Restaurants (DRI 119) near 112
DSW Inc. (DSW 31) near 28.5
Etsy (ETSY 52) near 43.5
Greenbrier (GBX 59) near 56
Green Dot (GDOT 89) near 81
Ingevity (NGVT 103) near 94.5
Inogen (INGN 285) near 228
Lululemon (LULU 154) near 134
Michael Kors (KORS 72) near 70
MongoDB (MDB 82) near 64
Novocure (NVCR 49) near 38.5
Okta (OKTA 71) near 55
PayPal (PYPL 92) near 81.5
Roku (ROKU 71) near 55
Seattle Genetics (SGEN 78) near72.5
SiteOne Landscape (SITE 92) near 87
Square (SQ 91) near 76
Teladoc (TDOC 78) near 63
Twilio (TWLO 87) near 70
Vertex Pharmaceuticals (VRTX 180) near 174
VFC Corp. (VFC 91) near 89
Wayfair (W 150) near 123
Workday (WDAY 152) near 143
Zendesk (ZEN 72) near 63