After a terrible couple of months, we finally got some legitimate good news this week—our intermediate-term trend model (which we call the Cabot Tides), which turned negative on October 10, flashed a green light on Thursday, telling us the intermediate-term trend for the major indexes is turning up.
Yes, a lot of this had to do with Wednesday’s huge rally, but just as important was the fact that the major indexes stopped falling way back in late October and successfully retested their lows early last week.
What does the signal mean? Simply put, it means the evidence has improved, and since we always adjust our posture to match the market’s evidence, you should be putting some of your sidelined cash to work.
That said, we wouldn’t jump back in with both feet. Our longer-term trend model (called Cabot Trend Lines) are still negative, as most major indexes are still living below longer-term moving averages. And it’s important to realize that, when these nascent rallies fail, they usually do so in short order (big investors take advantage of the strength to get out).
Thus, we advise starting relatively slow—putting some of your cash to work, but holding plenty on the sideline for now—and then use the action in the days ahead as a feedback mechanism. Should your new buys, stocks you’re watching and the market itself power ahead, there’s a good chance this rally is the real deal. But if a few days from now all your new buys are down and the market is under distribution, you should hold off on further buying.
I’m not trying to throw cold water on this rally. As we wrote above, the evidence has clearly improved, both for the market and for potential leading stocks, and that deserves a response (do some buying). Now let’s see if the buying pressures can spread and if more stocks can break free of multi-week consolidations—if so, we could have a sustained rally with lots of profit-making opportunities ahead.
BUY IDEAS
BioTelemetry (BEAT 72) is a bit thin, but you can’t argue with its resilience—the stock surged to new highs in early November after earnings, held its 50-day line on the market’s retest, and has lifted to new highs on good volume this week. You can buy a little here or on dips of a couple of points, with a stop around 62.
We’re not huge fans of buying stocks that had straight-down, straight-up moves, but the relative strength in Etsy (ETSY 54) is impressive—the stock has recovered all of its 12-point, mid-November decline, albeit on so-so volume. Keep an eye on it—a pullback of two or three points in the days ahead could provide an opportunity.
Glaukos (GKOS 65) effectively hit its correction low in early October, retested that area many times since, and is now pushing into the middle of its three-month consolidation on decent volume. You can consider starting small around here (with a loss limit near 57) and look to add shares on a big-volume move above 70 or so.
It’s not a glamorous story, but Mosaic (MOS 36) continues to act very well after its earnings-induced thrust in early November. The stock has traced out a tight range between 34.5 and 37 and has good-looking earnings estimates (up 29% next year). We’re OK nibbling here with a stop near 34, and looking to add on a decisive push above 37 or 37.5.
Omnicell (OMCL 77) looks like a leader, with a tight consolidation near its highs in November and a decent-volume push to new highs this week. If you’re game, you can take a stab at it here, with a stop around 67.
SELL IDEAS
We had six sells listed in Monday’s brief update—Cadence Design (CDNS 45), GasLog (GLOG 21), Intelsat (I 25), Jacobs Engineering (JEC 65), Vale (VALE 14) and VeriSign (VRSN 157). There are no additional sells today.
SUGGESTED STOPS
Alteryx (AYX 60) near 51
Amarin Corp. (AMRN 18) near 15.5
Ciena (CIEN 32) near 30.5
Decker’s Outdoors (DECK 132) near 121
Dine Brands (DIN 91) near 81
Eli Lilly (LLY 116) near 106
Exact Sciences (EXAS 77) near 64
Genomic Health (GHDX 80) near 68
Glaukos (GKOS 65) near 57
Guardant Health (GH 36) near 33
Mellanox Technologies (MLNX 93) near 86
MongoDB (MDB 81) near 68
Ollie’s Bargain (OLLI 89) near 84
PayPal (PYPL 84) near 78
Petrobras (PBR 14) near 13.5
Spirit Airlines (SAVE 64) near 55
Tractor Supply (TSCO 95) near 89