This week certainly wasn’t the maelstrom last week was, but after a promising bounce following Monday morning’s wipeout, the sellers have come back around for things—on the week, the major indexes are lower, though the declines aren’t horrific, especially for broader indexes like small and mid-caps.
However, once again, we saw the selling focused on growth stocks—the two-day bounce mid-week vanished quickly, with many individual names probing new correction lows while growth-oriented indexes are mostly down another couple of percent this week (ARKK is down more than 6%!).
On the flip side, we’re still seeing solid action among broader areas, with materials, housing (nice pop this week) and others either holding or advancing. Don’t get us wrong, there aren’t many stocks lifting in a big way, but in the broad market, there are still a good number of charts that look bullish.
Overall, then, our stance really isn’t any different. First and foremost, with growth under pressure and wide swaths of the Nasdaq looking awful (nearly 75% of stocks on the Nasdaq are below their 200-day lines!), we certainly wouldn’t be playing hero in that area of the market. Elsewhere, we’re not opposed to a little buying in some strong names, especially those showing some power—but even there, realize that in such a bifurcated environment, risk is elevated, either due to the growth stock selling spreading or from some type of rotation that takes down cyclicals for a while and boosts beaten-down growth stocks. (Indeed, we’re seeing a bit of that rotation so far today.)
In other words, stay cautious overall, and don’t be greedy if you do land a winner or two; raise stops and consider partial profits if you get a quick windfall profit. But given the resilience of the broad market, we’re still fine doing some (small-ish) buying here and there if you already have plenty of cash—preferably on pullbacks in stocks that have shown solid buying volume over a few days. Our Market Monitor will likely remain a level 5 for now, though we’ll be on the lookout for any signs the selling is spreading.
Suggested Buys
Ciena (CIEN) has taken on some water of late, including some above-average selling, so it’s not a perfect setup. Still, given the environment, the fact that it’s still holding its earnings gap is impressive—if you don’t own any, a small buy here with a stop under the 50-day line (now at 68) seems like a solid risk-reward.
Louisiana Pacific (LPX) has lost a little steam, but tagged its 50-day line on Monday and has bounced nicely. There’s some overhead near 80 to chew through, but again, looking through the risk-reward lens, we think a nibble here with a stop near 71 (under the 50-day line and this week’s low) isn’t a bad shot to take.
Breakouts aren’t high-odds plays in crummy markets, but we like the action of ZIM Shipping (ZIM), with a multi-day ramp on very solid volume that pushed the stock and relative performance line to new highs. It’s a mover, but dips of a couple of points would be tempting, with a stop near 53.
Suggested Sells
We’re bullish on oil stocks in general, but there’s no question most things have gone right for them lately, including a favorable OPEC meeting, rising prices and money flows out of growth and into cyclicals. It’s fine to just hold on, but if you’ve owned some for a while and have made good money, we wouldn’t argue with letting a few shares go up here.
ICON (ICLR) – tripped stop
Knight Swift (KNX) – tripped stop
Martin Marietta (MLM) – breakdown
Red Rock Resorts (RRR) – tripped stop
Suggested Stops
A.O. Smith (AOS) near 76
Diamondback Energy (FANG) near 110
Ford Motor (F) near 21
Fluor (FLR) near 21
KLA Corp. (KLAC) near 404
Louisiana Pacific (LPX) near 71
Marvell Tech (MRVL) near 76.5
Nucor (NUE) near 107
ON Semi (ON) near 60.5
Qualcomm (QCOM) near 172
Toll Brothers (TOL) near 63.5
Vulcan Materials (VMC) near 188
WillScot (WSC) near 37