The market remains very weak, with growth stocks still leading the way lower, though the selling has been spreading to more nooks and crannies of the market. Coming into today, the S&P 500 is down nearly 4% on the week, while the Nasdaq is off 5% and growth-oriented funds and indexes are off 5% to 8%.
While the action has been dramatic, there’s really no change in our overall thinking—the sellers are generally in control here, with growth stocks still bleeding out and with the rest of the market coming under pressure. Thus, we continue to advise a cautious/defensive stance, holding plenty of cash and doing a lot of watchful waiting to see when the sellers run out of ammo.
If you’re looking for positives, we still see a decent number of cyclical-type stocks that are acting OK even as they’ve hit potholes this week; if they find support (obviously a big if), they could provide decent-odds pullback-related buy setups.
But our main thought right now is that, even if you’re in the best of the best stocks (and there aren’t many), there isn’t much money being made—and the risk of further rotation or a sharp slide to create some “real” panic is growing. That’s why we favor letting others try to catch every wiggle; we prefer to stay mostly on the shore and wait for the storm to pass.
As for the “are we close to a low” question, we are seeing “progress” on some oversold/sentiment measures that suggest more are throwing in the towel. On the Nasdaq, there has been an average of 675 new lows during the past five days, while less than 20% of stocks on that exchange are north of their 200-day line—both are shy of the March 2020 and end of 2018 plunges but are getting close. We also saw this week’s AAII sentiment measure with the fewest bulls and most bears since the summer of 2020—again, getting there, but not truly extreme.
All in all, though, remember that when volatility picks up, so does the number of dramatic predictions (bull or bear); we prefer to let others predict and guess, instead focusing on just staying in gear with what’s actually happening. Right now, while a nibble here or there on some names as they pull into support is fine, the main message is to stay mostly on the sideline while updating your watch list with names that begin to resist the decline.
Suggested Buys
Freeport McMoRan (FCX) is a commodity name that’s finally pulling in with the market but remains in fine shape overall. If you want to take a swing at it on dips toward the 25-day line (now at 41.6 and rising steadily), with a stop in the upper 30s, we wouldn’t argue against it. Another option would be to wait for the stock to rise a point or two from whatever the low of this pullback ends up being—which could keep you out of trouble if the decline persists.
Hewlett Packard Enterprises (HPE) is the type of name that could hold up, with a very cheap valuation, a steady business and a solid yield. The pullback this week looks normal, so if you want to nibble here with a stop around 15.5, we’re OK with it.
Oil stocks are finally pulling in a bit, but to this point the action is completely normal. If you don’t own any, we’re fine with starting a position in one of: Devon Energy (DVN; downgraded today by one brokerage house, though it looks fine), Diamondback Energy (FANG), Marathon Oil (MRO) or Pioneer Natural Resources (PXD) and use a 10%-ish loss limit from your purchase.
Suggested Sells
Not surprisingly, many of the few remaining stops we had in place got hit this week as the selling spread—the following were sold earlier this week as they violated their lines in the sand:
KLA Corp. (KLAC)
Louisiana Pacific (LPX)
Marvell Tech (MRVL)
Nucor (NUE)
ON Semi (ON)
Qualcomm (QCOM)
Seagate Tech (STX)
Vulcan Materials (VMC)
WillScot (WSC)
Suggested Stops
A.O. Smith (AOS) near 76.5
Ciena (CIEN) near 64
CF Industries (CF) near 61
Diamondback Energy (FANG) near 112
Ford Motor (F) near 21
Fluor (FLR) near 21
Hyatt (H) near 85
Jabil Circuit (JBL) near 63.5
Star Bulk (SBLK) near 20