Well, the market’s small dose of good action for the second half of December was mauled by the bears this week—all indexes are down at least somewhat, and among growth-oriented titles from a variety of sectors (tech, cybersecurity, solar, software, retail, you name it), it’s been nothing short of a mini-crash, with the Nasdaq down 3.5%, growth-oriented indexes down 5% or more and many individual titles off 15% to 20%.
On the bright side (yes, there is a bright side), a few swaths of the broad market are still in good shape—in fact, the overall intermediate-term trend is still positive, and small- and mid-cap indexes (as well as the NYSE Composite) act decently as many cyclical names (financials, commodities, industrials) have done pretty well. We’ve even seen some breakouts here, and on a longer-term basis, some of these areas are trying to resume major uptrends after multi-month rests.
While we do think there could be some buying opportunities there if the market finds support, there’s little doubt that risk is elevated—big investors are clearly favoring defense (XLP remains in great shape), hundreds of stocks are again hitting new lows (more than 600 on the Nasdaq alone yesterday), growth stocks are in tatters and, even for names that are acting pretty well, the risk of some sort of rotation (even for the short-term) is real.
As for the game plan, the first thing is that you should be in a cautious stance, holding a good chunk of cash and waiting for the selling to abate.
On the sell side, we wouldn’t be anxious to puke a ton of things here, but we also wouldn’t just hold and hope if you own a ton of busted stocks—consider trimming some of your worst performers and see what comes.
Finally, on the buy side, we’re not against it (again, assuming you’re already in a cautious stance), with some names pulling in toward support and, as mentioned above, many cyclical stocks holding up well. Encouragingly, many Top Ten names handled themselves well this week.
But big picture, remember that the real money will be made (or made back) during the next sustained uptrend—some things can work here if we bounce, but you want to retain most of your capital and confidence for the next uptrend, which will come.
Suggested Buys
A.O. Smith (AOS) has held up well this week and overall has been chopping around for a few weeks as the 50-day line (now above 81) approaches. A small buy here with a stop in the 78 area seems like a good risk-reward.
Energy stocks have obviously gone nuts thanks to the rush into cyclical names and higher oil prices (now near $80). We wouldn’t chase here, but a controlled pullback next week could be interesting, especially as these names just rested and had a big shakeout during the past month. Devon Energy (DVN) remains a leader; dips to 45-46 would be tempting, with a stop near 40, while Diamondback Energy (FANG) would be interesting in the upper 110s, with a stop near 105.
Suggested Sells
Arcbest (ARCB) – failed breakout and back to our entry
MP Materials (MP) – good-sized reversal and failed breakout; looks OK but we’ll take a small profit
Palo Alto Networks (PANW) – tripped stop
TopBuild (BLD) – tripped stop
Trupanion (TRUP) – tripped stop
Suggested Stops
Advanced Drainage (WMS) near 126.5
Capri (CPRI) near 62
Diamondback Energy (FANG) near 107
Ford Motor (F) near 20.5
ICON (ICLR) near 270
KLA Corp. (KLAC) near 400
Knight Swift (KNX) near 57
Lam Research (LRCX) near 650
Louisiana Pacific (LPX) near 70
MP Materials (MP) near 41
ON Semi (ON) near 60.5
Pure Storage (PSTG) near 29.5
Qualcomm (QCOM) near 170
Red Rock Resorts (RRR) near 47.5
Silicon Labs (SLAB) near 186
Tesla (TSLA) near 1000
Trex (TREX) near 120