Following last Friday’s huge rally, it’s been a generally quiet week for the major indexes. As we write, the S&P 500 is basically flat on the week, while the Nasdaq is up less than half a percent.
As has been the case for many weeks, the market’s primary evidence (meaning the intermediate- and longer-term trends of the major indexes and leading, Top Ten-type stocks) remains bullish. Moreover, while we don’t keep a stock-by-stock scorecard, the tenor of most stocks remains positive with relatively few earnings disasters.
Given that, we remain bullish, and advise you to remain heavily invested.
As for yellow flags, there are a couple. The broad market, for instance, has shown some slippage during the past week or two; you can see this if you’re looking at the number of stocks hitting new lows (which has been picking up on both the NYSE and Nasdaq) or broad measures like the percent of stocks above their 50-day lines (down from 78% to 66% within the S&P 500 since October 20). Right now, it’s not a big worry, but it’s worth watching.
Shorter-term sentiment measures are also in nosebleed territory. Of course, sentiment is a secondary, inexact indicator—sometimes the market will pull back almost immediately following these types of readings, and other times, it will march higher for another few weeks.
Thus, we certainly wouldn’t take action based on sentiment, but it’s a good reminder to have a plan with your current stocks (stops, partial profits, what to do ahead of earnings, etc.) and potential new buys (looking for lower-risk entries like pullbacks or powerful breakouts after long consolidations).
One other thing we’ve noticed lately is that few stocks that gapped up powerfully on earnings have followed through right away. That’s not bearish, but something to consider when looking to buy one.
All told, you should keep your feet on the ground and not get complacent; pullbacks will surely occur. But with the majority of the market’s primary evidence pointed up, you should remain bullish, giving your best stocks a chance to continue higher and looking to leap on new opportunities as they appear.
BUY IDEAS
Five Below (FIVE 58) spiked to new highs in late September and early October, but then took a three-week rest. Now it’s showing signs that it’s ready to resume its breakout, with the stock perking up yesterday and this morning on solid volume. If you don’t own any, you can buy some here with a stop around 52.
iRhythm Technologies (IRTC 52) has consolidated since late September, kissed its 50-day line and has shown some life following earnings this week. If you’re game, you could buy around here with a very tight stop near 48.5.
Meritor (MTOR 28) has a great pattern, with a huge-volume surge to new highs in September and a tight consolidation during the past four weeks. Today, the stock is perking up to new highs on good volume, though earnings are due November 15. Even so, we’re OK buying a small (half-sized) position here with a mental stop around 24.
Spirit Aerosystems (SPR 83) had been crawling higher in recent weeks before a sharp one-day shakeout on earnings to slightly below its 50-day line. And the next day it quickly surged right back to new highs! It’s not a go-go type of stock, but we like the pattern—you can buy some here with a stop around 76
SELL IDEAS
Arista Networks (ANET 197) knocked us out on a huge pre-earnings shakeout yesterday (our stop wasn’t very tight, as the stock dipped well below its 50-day line), but it’s soaring back toward its highs after another great quarterly report. If you still own some, you can hang on with a stop around 183. But we’ll follow along with our discipline and assume we sold yesterday.
Other sells due to stops include: Baidu (BIDU 241), Eagle Materials (EXP 104), Live Nation (LYV 43), LPL Financial (LPLA 50) and Summit Materials (SUM 31).
Also, don’t forget to book some partial profits when you get a windfall—Juno Therapeutics (JUNO 60) is a good example, as the stock just went bananas, rallying from the mid-40s to 60 on some positive data. Consider selling one-third and holding the rest for what hopefully will turn out to be a longer-term move.
SUGGESTED STOPS
58.com (WUBA 68) near 61.5
Abiomed (ABMD 193) near 170
AbbVie (ABBV 9x) near 86.5
Adient (ADNT 81) near 79
Alcoa (AA 47) near 45
Alibaba (BABA 183) near 164
Align Technology (ALGN 239) near 200
Alnylam (ALNY 135) near 124
BitAuto (BITA 47) near 44
Catalent (CTLT 42) near 39.8
CBOE Holdings (CBOE 115) near 106
China Lodging (HTHT 125) near 120
Essent Group (ESNT 41) near 40.5
E*Trade (ETFC 44) near 42.4
Guess (GES 17) near 15.7
Guidewire Software (GWRE 80) near 75.5
HubSpot (HUBS 85) near 79
IPG Photonics (IPGP 211) near 191
iRhythm Technologies (IRTC 52) near 48.5
Juno Thereapeutics (JUNO 60) near 46
Lear Corp. (LEA 177) near 165
Loxo Oncology (LOXO 89) near 82
Nintendo (NTDOY 47) near 45.5
Nvidia (NVDA 207) near 180
Planet Fitness (PLNT 27) near 25.3
Proofpoint (PFPT 90) near 87.5
Red Hat (RHT 121) near 112
Salesforce.com (CRM 102) near 96.5
Skechers (SKX 31) near 30.5
Sociedad Quimica (SQM 57) near 52
SolarEdge (SEDG 33) near 28.5
Spirit Aerosystems (SPR 83) near 76
Square (SQ 36) near 30
Take-Two Interactive (TTWO 109) near 99
Terex (TEX 46) near 42.5
Universal Display (OLED 157) near 123
Winnebago (WGO 49) near 42
Yelp (YELP 45) near 43
YY Inc. (YY 90) near 82