Note: With the calendar about to flip, I want to wish all of you and your families a very happy, healthy and prosperous New Year. I’m glad to have you onboard and look forward to exciting times (and many winners) in 2022. Cheers!
The market’s snapback from its mid-December low has been solid—the S&P 500 being at new highs is never a bad thing, and by our measures, the market’s overall intermediate-term trend has turned back up. Of course, the indexes have been thrashing around, so we can’t rule out another dip, but just going with what we see, the picture has improved.
Moreover, this comes on top of some other positives. We wrote about the wave of buying after the early-December low; three out of four days with up volume on the NYSE north of 80% is generally a good sign. We also saw a minor positive divergence with fewer stocks hitting new lows in mid-December even as the Nasdaq retested its low.
And, interestingly, we saw another modest positive emerge during the recent spurt higher—the S&P 500 rallied four straight days with gains of at least 0.5% on each day. It’s not a true blastoff signal (and it occasionally happened just before renewed weakness), but more often than not it led to good things—six months later, the index’s maximum gain was around 12%, compared to just a 3% maximum loss.
All of that tilts the arrow toward the bullish side of the fence. But notice we said “tilts”—there are still plenty of air pockets out there, plenty of stocks in poor shape (45% of NYSE stocks and 71% (!) of Nasdaq stocks are south of their 200-day line) and growth-oriented funds and indexes (QQQJ, ARKK, FFTY, etc.) are still mired in the mud.
Thus, overall, we’re OK extending your line a bit if you’ve been heavily in cash—there is some better action out there, and while growth stock setups are still hard to find, more positive charts can be found elsewhere. But we think it’s best to go slow and keep your eyes open; we should learn a bit more during the next week or two once big investors put down the eggnog and come back to their trading desks.
Suggested Buys
KLA Corp. (KLAC) had a great-looking breakout in early November, but then chopped sideways and was yanked down by the market two weeks ago—right to its 50-day line. Since then, the stock has acted great (albeit on low volume), pushing to new highs. If you don’t own any, dips under 430 would be tempting with a tight-ish stop near 396.
It’s up and down like everything else, but Qualcomm (QCOM) is another chip name that’s acting well—and really never got hit badly during the selloff. It may need a bit more seasoning, but a nibble here or on dips into the low 180s, with a stop near 167, seems like a solid risk/reward.
Suggested Sells
Alnylam Pharmaceuticals (ALNY) collapsed after some sour trial news—if you started a position, we’d look to cut bait.
We might prune a couple of others come Monday, possibly some that have levitated higher for a few weeks, but ALNY is the lone sell for now.
Suggested Stops
Advanced Drainage (WMS) near 125
Capri (CPRI) near 60
Diamondback Energy (FANG) near 98
Ferrari (RACE) near 247
Ford Motor (F) near 18.9
KLA Corp. (KLAC) near 396
Knight-Swift (KNX) near 56.5
MP Materials (MP) near 41
ON Semi (ON) near 58.5
Palo Alto Networks (PANW) near 520
Pure Storage (PSTG) near 29.5
Qualcomm (QCOM) near 167
Silicon Labs (SLAB) near 185
TopBuild (BLD) near 258
Trex (TREX) near 124
Trupanion (TRUP) near 116
WillScot (WSC) near 37