Note: We’re sending this a day early as we head out early for the long weekend—as a reminder, your next issue of Top Ten will be emailed out next Tuesday, February 22. Thanks, and have a great long weekend.
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The major indexes have been flopping around this week, with some ups and downs, though things are quieting down just a bit. Growth funds have been mostly in the same boat, choppy but up a smidge on the week. Not the worst, not the best.
Overall, though, from an intermediate-term perspective, nothing has changed: Just about every major index and growth fund we follow remains in a downtrend, as do the vast majority of individual stocks, with around 60% of NYSE and nearly 80% of Nasdaq stocks living below their 200-day lines. Until that changes, it’s hard to get too constructive on the market—we continue to recommend a cautious stance, holding cash and keeping most new positions on the small side.
That said, we are seeing a few encouraging things, the first of which is simply the fact that the market has stabilized somewhat since its selling panic of January 24. In fact, if we see a couple of good days in growth-oriented funds, we could actually see an intermediate-term buy signal sometime next week.
Moreover, sentiment continues to worsen, with more and more measures showing more and more unease; today’s AAII weekly survey showed the fewest bulls since 2016! (According to SentimenTrader.com, there have been 31 weeks when bullish sentiment was this low—and 29 of them saw higher S&P 500 prices three months later.) And third, we are seeing some of the wheat separate from the chaff, both between sectors (commodities remain strong, as does some economically sensitive stuff) and even among growth stocks—while some things (PYPL, FB, SHOP, etc.) melt down, other names have reacted well to earnings and act a bit more sold out.
All in all, though, you know us: We just take it as it comes, and right now, while the market has taken a couple of baby steps, it needs to show more before we’re comfortable taking some big steps back into the market. We could nudge our Market Monitor up a notch (to a level 5) if things continue to stabilize, but anything more than that will depend on some trends turning up and more stocks letting loose on the upside.
Suggested Buys
Huntsman (HUN) popped nicely on earnings on Tuesday and then followed through on even bigger volume on Wednesday. It’s extended here, but dips look buyable—a pullback under 40 with a stop near 36 seems like a fair risk-reward situation.
It’s a similar situation with Expedia (EXPE), which did pop out on the upside after earnings. Dips back to 200-ish would be tempting, with a stop in the low 180s.
Suggested Sells
KBR Inc. (KBR) – could be OK but living below resistance now for a while.
Vertex Pharmaceuticals (VRTX) – Acting a bit funky since the start of February and don’t want to let our small profit turn into a loss. (FYI there was a snafu in the last issue—VRTX wasn’t a Wait, as it’s been a Hold since late January.)
SUGGESTED STOPS
Blackstone (BX) near 117
CF Industries (CF) near 68.5
Charles Schwab (SCHW) near 86
Chesapeake Energy (CHK) near 63.5
Deere (DE) near 368
Diamondback Energy (FANG) near 116
Hewlett Packard Ent (HPE) near 16.3
Huntsman (HUN) near 36.5
KBR Inc. (KBR) near 42.5
Palo Alto Networks (PANW) near 485
PDC Energy (PDCE) near 53.5
Regeneron Pharm. (REGN) near 595
Teck Resources (TECK) near 32.5