After a scary plunge on Monday, the market has finally gotten off its knees and staged its first solid bounce since the meltdown began in early October. Despite some selling this morning, the S&P 500 and Nasdaq are both up around 2.3% on the week.
In the short term, the fact that the major indexes (and many individual stocks) put in three straight days of gains (on solid volume to boot) is a good sign; you can never be sure of such things, but it’s certainly possible we have a short-term low to work from. That doesn’t mean every day will be up, but ideally the market can recoup some more of its huge declines in the days ahead.
We advise using the bounce three ways. First, if you got caught with a bunch of broken stocks and/or big losses, it’s probably a good idea to use this rally to lighten up. Second, the upmove is allowing us to see what stocks are showing relative strength, especially those that are popping on earnings. And third, for the more adventurous, it could provide some shorter-term buying opportunities.
“But Mike, what about the chance that the market just kites higher from here?” As we always say (and mean), we’re open to anything, and it’s possible the market simply kites higher from here. But the market is an odds game, and after such a powerful downward thrust, the odds favor some further reverberations going forward, be that another leg down, a retest, some choppy action, whatever. We’ll simply take it as it comes.
As for our overall stance, we’re not making any big changes today—we might bump up the Market Monitor a notch to a level 4 if things continue to improve, and like we said above, we’re OK doing a little nibbling either for a short-term trade or trying to get an early start on a name or two in what could be a new leader. But things in the market usually take time, so it’s best to wait until the clouds really part (intermediate-term trend turns back up) before making any major commitments.
Five Below (FIVE 121) is one of a handful of growth stocks that’s actually above its 50-day line at this time as it builds a new launching pad. After the stock’s recent pop, it’s probably a good idea to target dips of a couple of points from here, with a stop near the recent lows near 107.
We also like the action of Dine Brands (DIN 86), which we wrote up a couple of weeks ago—the stock held its early-October low last week and has rebounded on excellent volume. Again, if you want to nibble, we’d aim for weakness of two to three points, with a stop in the 76 area.
GasLog (GLOG 23) is one for your watch list if you didn’t buy any on our initial recommendation, as shares soared on earnings this week on its heaviest volume since early 2016! Buying a little on dips toward 21.5 is one idea (with a stop around 19), or just keep an eye on it.
We had five stocks that tripped their stops, either due to market pressures or earnings.
American Outdoor Brands (AOBC 14)
Callaway Golf (ELY 21)
Ecopetrol (EC 22)
Ensco (ESV 7.2)
Rowan Co. (RDC 16)
Ciena (CIEN 32) near 29
Dine Brands (DIN 86) near 76
Eli Lilly (LLY 107) near 101
Endo Pharmaceuticals (ENDP 17) near 15
Guardant Health (GH 37) near 29.5
Intesat (I 28) near 23
Jacob’s Engineering (JEC 75) near 70.5
Kirkland Gold (KL 20) near 18
Nordstrom’s (JWN 66) near 59.5
Pacira Pharm. (PCRX 49) near 46.5
Spirit Airlines (SAVE 53) near 48