While volatility remains extreme, the market had another constructive week—as of mid-morning, the S&P 500 was up 2.1% and Nasdaq was up a weaker 0.8% on the week. Individual stocks have done well, too, thanks to a combination of buoyant earnings reactions (we spotted a bunch in recent days) and Wednesday’s booming advance.
So are the good times back? Not quite, though next week should go a long way toward telling the tale. At this point, the big-cap indexes have recouped about 55% to 60% of their October downturns, while small- and mid-cap indexes (which topped out in September) are 40% to 50% back up the ladder. Given that the rally is less than two weeks old, that’s all well and good.
That said, our measure continue to tell us the intermediate-term trend remains down, at least for now. All the indexes we track have popped back above their 25-day moving averages, but for a green light, we need to see those 25-day lines advance—basically, we need to see the indexes higher than they were five weeks ago.
That hasn’t happened yet, which is one reason we continue to advise a defensive stance. Other reasons include the lack of stocks hitting new highs (just 75 on the Nasdaq yesterday) and the continued relative strength in defensive areas of the market, a sign that big investors aren’t convinced of the rally. Because of that, we’re likely to leave our Market Monitor at a level 4 on Monday.
What would change that? Simply put, a bit more strength over the next week—if the major indexes can tack on a little more upside, we could get a buy signal by the end of next week. If that happens, we’d likely follow our usual game plan: Step slowly back into the market, and then let bullish action from the market (and individual stocks) “pull” us into a more heavily invested position. As always, we’ll take it as it comes.
For now, though, we’re in the same general stance as we’ve been in for the past few weeks—a little buying here or there is fine, especially in stocks that have shown real strength after earnings, but we’d still be holding a ton of cash on the sideline and focusing mostly on building a watch list should this rally turn into the real deal in the weeks ahead.
BUY IDEAS
It’s not a major pullback, but Amarin (AMRN 21) has eased lower during the past few days to meet up with its 25-day line this morning, where it’s finding a bit of support despite the down market today. There’s still risk if the market suffers another leg down, but nibbling here with a relatively tight stop near 19 is one idea.
Eli Lilly (LLY 110) has been choppy, but overall, it’s been holding up very well after its solid rise in August and September. We’re OK buying a little here with a stop near 102, or waiting for a decisive push north of 115 after the market confirms a new uptrend.
Ulta Beauty (ULTA 309) staged a great-looking reversal higher yesterday, initially dipping after the firm released a long-term forecast at its analyst day, but then rising steadily to new highs in the afternoon and continuing higher this morning. As we’ve seen repeatedly in this market, stocks hitting new highs usually pull back, so if you want in, grabbing some shares on dips toward 300 with a stop near 275 is one idea.
We really like the way Xilinx (XLNX 86) is acting—it shook around a bit on Wednesday when it was reported the company will try to buy Mellanox (also a Top Ten stock), but net-net, shares have held all of their sharp late-October move to new highs. A dip of a couple of points would be tempting, with a stop near 78 or a bit below that.
SELL IDEAS
We have just one sell recommendation this week: Endo Pharmaceuticals (ENDP 13), which imploded on earnings.
SUGGESTED STOPS
Acadia Pharm. (ACAD 19) near 18
Ciena (CIEN 34) near 30
Dine Brands (DIN 92) near 78
Eli Lilly (LLY 110) near 102
Glaukos (GKOS 62) near 54
Guardant Health (GH 36) near 31
Intelsat (I 27) near 23.5
Jacobs Engineering (JEC 77) near 71.5
Kirkland Lake Gold (KL 19) near 18.4
Mellanox Technologies (MLNX 93) near 85
MongoDB (MDB 76) near 67
Nordstrom’s (JWN 65) near 60
Pacira Pharm. (PCRX 50) near 46.5
Spirit Airlines (SAVE 54) near 48.5
Vale (VALE 15) near 14.2