The market is having a solid morning today, but this comes on the heels of a hellacious selloff that began the first day of October, with leading growth stocks getting hit first, which then dragged down the Nasdaq, which then infected the rest of the market in recent days. At this point, the intermediate-term trend is down and most stocks are in rough shape, telling us to be in a defensive, capital-preservation-first stance.
Taking a step back, let’s look at all three time frames and see what we can glean.
In the short-term, yesterday (Thursday) did bring some “puke” readings from a couple of measures. The volume in index ETFs and inverse ETFs was enormous (a sign people are hedging), while intraday, the late afternoon sell program brought the intraday TICK (a measure of how many stocks’ last trade was lower) to its lowest level in a decade. And, of course, this morning we’re seeing a decent bounce.
Thus, we wouldn’t be surprised if the market can bounce off of yesterday’s low for a bit. We’re not short-term traders, but our main thought is that if you’re stuck with some losers or big positions, you could use this bounce to lighten up. And if you want to try to buy low, that’s fine, but keep positions small and use reasonable stops.
Intermediate-term, as we wrote above, the trend is now down for the entire market. We would never put anything past the market, and maybe this is one huge, bond-market-induced shakeout that is now over. But given the big runs in many stocks, the topping action of September and the huge selloff, the odds favor the market (and growth stocks especially) needing time to consolidate.
Longer-term, we actually remain quite constructive. By our measures the longer-term trend is still up, numerous studies point to higher prices in the months ahead and we didn’t see many of the classic divergences in breadth or euphoric sentiment. Now, we wouldn’t be surprised if this is the end of one phase of the bull market (led by growth stocks), with the next phase led by more cyclical names—we’re not predicting that, but it’s worth pondering.
All together, the evidence has turned negative, and while we don’t view this as a repeat of 2008 and don’t believe you should be 100% in cash, we do believe a defensive stance is warranted. If you want to try to do some short-term trading in a small way, that’s fine, but overall it’s best to hold plenty of cash, cut back on new buying and let the dust settle. We’ll be moving our Market Monitor down to a level 4 on Monday.
BUY IDEAS
It was just recommended this week, but we remain very impressed with the resilience of Canopy Growth (CGC 50), which remains in a nice basing area after a huge run and the market’s selloff. We’re OK buying a little here with a stop in the low 40s if you want, or just watch for a decisive push above 52 or so to get started. We would note that nationwide legalization of cannabis in Canada is slated for next week, and it’s possible CGC could see a “buy the rumor, sell the news” reaction. But just going with what we see, so far, it’s encouraging.
Dave & Buster’s (PLAY 61) has pulled back near its 10-week line, and remember that while it’s had a good run in recent months, this comes after a huge correction—i.e., many weak hands have likely already sold out. You could consider nibbling here, albeit with a tight stop around 57.
Ulta Beauty (ULTA 277) already went through the wringer last year and early this year, so many weak hands were likely out. And, indeed, while bending, the stock didn’t break and has snapped back. You could start a position here with stop near 260.
SELL IDEAS
The market’s implosion through Thursday caused the majority of stocks to break down, leading to a bunch of sells. For many of these names, you could give them a bit more rope if you have reasonably-sized positions and still have profits. But as always we’ll honor the stops we had listed, so the following names are now Sells:
Aaron’s (AAN 50)
Align Technologies (ALGN 325)
Autodesk (ADSK 139)
DSW Inc. (DSW 28)
Illumina (ILMN 322)
iRobot (IRBT 90)
Lululemon (LULU 146)
MongoDB (MDB 64)
Neurocrine Bio (NBIX 111)
Okta (OKTA 57)
Omnicell (OMCL 63)
Palo Alto Networks (PANW 211)
Paylocity (PCTY 66)
Pure Storage (PSTG 23)
Roku (ROKU 61)
Sailpoint Tech (SAIL 27)
Seattle Genetics (SGEN 73)
Sendgrid (SEND 31)
Square (SQ 73)
Teladoc (TDOC 67)
Veeva Systems (VEEV 92)
Vertex Pharmaceuticals (VRTX 178)
VFC Corp. (VFC 88)
Yelp (YELP 42)
SUGGESTED STOPS
Advanced Micro Devices (AMD 27) near 23.5
Allegheny Tech. (ATI 27) near 26.5
Allison Transmission (ALSN 49) near 48.5
CF Industries (CF 53) near 51
Ciena (CIEN 29) near 28
Dave & Buster’s (PLAY 61) near 57
Exact Sciences (EXAS 68) near 63.5
Greenbrier (GBX 60) near 59
Grubhub (GRUB 117) near 108
HealthEquity (HQY 84) near 81.5
Jacob’s Engineering (JEC 72) near 70
Ligand Pharm (LGND 205) near 200
Match.com (MTCH 54) near 50
Nordstrom’s (JWN 61) near 58
Novocure (NVCR 46) near 41.5
NuVasive (NUVA 65) near 64.5
PetIQ (PETQ 35) near 32.5
Spirit Airlines (SAVE 48) near 44.5
Trade Desk (TTD 123) near 115
Wingstop (WING 70) near 64
WPX Energy (WPX 19) near 17.5