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Top Ten Trader
Discover the Market’s Strongest Stocks

February 25, 2022

It’s certainly been an interesting holiday-shortened week, with the market continuing its recent plunge into Thursday, when Russia’s invasion of Ukraine caused a maelstrom at the open, with the major indexes diving to new correction lows—before they staged a rare, dramatic rally to close higher. This morning it looks like the market is going to open modestly lower.

Note: We’re on a bit of a working vacation this week, getting some much-needed Vitamin D with the kids, so we’re sending this out early this morning. The next Top Ten issue will come out as scheduled Monday evening (February 28). Thanks, and have a great weekend.

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It’s certainly been an interesting holiday-shortened week, with the market continuing its recent plunge into Thursday, when Russia’s invasion of Ukraine caused a maelstrom at the open, with the major indexes diving to new correction lows—before they staged a rare, dramatic rally to close higher. This morning it looks like the market is going to open modestly lower.

On the plus side, we are seeing more and more secondary-type indicators that are encouraging. The first is sentiment: It’s now been three-plus months since the decline started (mid-November), and nearly everyone has caught onto the fact that growth stocks are a mess and even the rest of the market (save some commodity areas) is having issues. Many survey-related measures are showing deep degrees of pessimism, and even some real money measures are starting to waver (though none are at true extremes).

Plus, internally, we’re seeing some healing among the broad market. For instance, even as the Nasdaq fell more than 500 points below its January 24 low point on Thursday, “only” 1,344 stocks hit new lows compared to 1,755 at the prior low. (New lows on the NYSE were essentially flat vs. late January, so no positive divergence there.) That’s still a lot of new lows, of course, but whether it’s this measure or just scanning many stocks, more and more titles are trying to hold their prior lows.

All of that, plus the actual reversal higher yesterday, is good to see. But as has been the case for weeks, when looking at the primary evidence, things are still bleak—the intermediate-term trends of the major indexes, growth funds and the vast majority of stocks is still pointed down. (We’re up to 68% of NYSE and 82% of Nasdaq stocks below their 200-day lines.) And, clearly, there are very few stocks looking ready to get going here outside of a few commodity names.

Overall, then, we’d say the market has a shot to get moving; it’s possible yesterday was the retest (or the first retest) that helps along this bottom-building process. But we need to see more on the upside before concluding anything has materially changed.

Suggested Buys
Chesapeake Energy (CHK) has been hugging its 50-day line for a few weeks and then popped nicely higher yesterday after earnings. It’s possible the move doesn’t stick in this environment, but if you wanted to take a swing at it here with a stop near 65, it’s a pretty solid risk-reward situation.

Admittedly, it’s hard to have confidence in a speculative biotech right now, but it’s also hard not to be impressed by what Intra-Cellular Therapies (ITCI) is doing, with a move to new highs last week and a calm pullback since. If you want to roll the dice on a small position here and a stop near 46 that’s fine by us.

We think both Halliburton (HAL) and Schlumberger (SLB) are approaching decent entry points—a dip toward 30 for HAL (stop near 27) and toward 37 for SLB (stop near 34) would be solid risk-reward situations in our view.

Suggested Sells
The following stocks tripped their stops and will be listed as sells come Monday:

Blackstone (BX)
Charles Schwab (SCHW)
Deere (DE)
Hewlett Packard Ent (HPE)
PDC Energy (PDCE)

Also being sold is Royalty Pharma (RPRX) and Stifel (SF), both of which cracked in recent days. If you want to look for a bounce, that’s fine, but we’re pulling the plug given the action.

SUGGESTED STOPS
Alcoa (AA) near 65
CF Industries (CF) near 69
Cheniere Energy (LNG) near 115
Chesapeake Energy (CHK) near 65
Concentrix (CNXC) near 183
Corning (GLW) near 39
Coterra Energy (CTRA) near 21.2
Diamondback Energy (FANG) near 118
Huntsman (HUN) near 36.5
Inspire Medical (INSP) near 210
Regeneron Pharm. (REGN) near 595
Teck Resources (TECK) near 32.5
ZIM Shipping (ZIM) near 61.5