When we look at the market these days, we’re separating the intermediate- to longer-term picture (which is our main focus) and the short-term picture.
When looking at the bigger picture, not much has changed with the market’s bullish outlook. The intermediate- and longer-term trends are still pointed up, and we continue to be encouraged by the lack of give-back by the indexes during this consolidation. We’re also happy to see some rotation into growth stocks; if earnings season goes well (always a big if), there should be lots of new leadership to sink our teeth into.
All of this tells us that the odds continue to favor the next big move being up.
Short-term, however, we think it’s a bit of a coin flip. First off, most indexes have now been chopping sideways in a tight range for a full month; that’s not bearish, but we’d like to see the market actually punch out new highs.
There’s also been a thinning of the advance—the number of stocks hitting new highs is way down from December, even on the Nasdaq, which has been nosing to all-time highs this year—and some short-term sentiment measures are a bit elevated, for what it’s worth.
What we’d really like to see is a resumption of the uptrend, both in terms of the major indexes and individual stocks, effectively telling us that the month-long rest period is over. This morning could be the start of that, but we’ll have to see.
Until that happens, it’s fair to say the short-term trend is sideways, but the major trends are still pointed up. Thus, it’s probably best to be a bit more discerning (looking for powerful upside volume as a stock takes off, etc.) makes sense until the advance resumes. But, big picture, we remain bullish—we’re keeping our Market Monitor at a level 8 (out of 10) and are looking to hold our strong, profitable stocks and rotate into new leaders as they emerge.
BUY IDEAS
Arista Networks (ANET 100) remains in a two-steps-forward, one-step-back advance with excellent upside volume clues in recent weeks. The current pullback to the 25-day line looks buyable, with a tight stop near 93. Earnings are likely out in early February.
Deere (DE 105) isn’t super-strong, but it’s been acting well after its giant-volume earnings gap in November, including a nice-volume rally to new highs last week. We’re game with a small position here and a stop around 98.
HealthEquity (HQY 49) has exploded to new highs this week on very good volume, and this comes after a few weeks of tight action in the low 40s, making for a firm launching pad. HQY is thinly traded and moves around a lot, but you can nibble here or, preferably, on dips of a couple of points, using a stop near 41.
Incyte Corp. (INCY 118) gapped to multi-month highs this week after a positive presentation at a well-followed biotech conference. There remains some old (from 2015) overhead in the 120 to 140 area, which is a worry, and the biotech sector remains so-so. But we like the action—a small position here with a stop near 106 looks like a good bet.
Steifel (SF 51) has moved straight sideways in recent weeks and is testing its 50-day line. It likely has earnings coming in early February, and we think you could look to buy on a resumption of the stock’s uptrend—a push over 52 looks buyable, with a stop near 48.
SELL IDEAS
First, we wanted to mention AK Steel (AKS 10), which, along with other steel names (including Steel Dynamics (STLD 36), were clobbered on Thursday after an analyst advised selling. It wasn’t a pretty day, but our advice is simple—follow the plan. If shares trip our loss limit in the low 9s (we had a 9.0 to 9.3 loss limit range in Monday’s issue), AKS should be sold. But until then, we’re holding, as AKS and its peers aren’t broken despite yesterday’s big decline.
As for official sells, we have none this week, however, we have a bunch of stocks that are within a couple of points of their stops. Should the market pull back, many will likely trip out.
SUGGESTED STOPS
Applied Materials (AMAT 34) near 31.5
Arista Networks (ANET 100) near 93
Burlington Stores (BURL 84) near 83
Cavium (CAVM 64) near 59
Eagle Materials (EXP 100) near 95
FMC Technologies (FTI 36) near 35
Freeport McMoRan (FCX 15) near 13.5
HealthEquity (HQY 49) near 41.5
MGM Resorts (MGM 29) near 28
MRC Global (MRC 20) near 19
Nvidia (NVDA 104) near 93.5
Oshkosh (OSK 69) near 64
Patterson-UTI Energy (PTEN 28) near 26
PayPal (PYPL 42) near 39
PDC Energy (PDCE 74) near 71.5
Quanta Services (PWR 35) near 32.5
RPC Inc. (RES 21) near 19.5
Signature Bank (SBNY 155) near 143
Spirit Aerosystems (SPR 58) near 57
Stifel Financial (SF 51) near 48
Take-Two Interactive (TTWO 51) near 48.5
TD Ameritrade (AMTD 47) near 41.5
Tesaro (TSRO 155) near 130
U.S. Silica (SLCA 57) near 51.5
Western Digital (WDC 71) near 63.5
XPO Logistics (XPO 44) near 41