The market is off this week, with most major indexes down 2% to 3% but still holding above their mid-June lows (or mid-May lows, if you dig into some key growth funds). All in all, the weight of the evidence remains the same—there are many under-the-surface encouraging signs, but the primary measures are still pointing down.
On the encouraging side of the fence, you have things like the positive divergence in the number of new lows—even as the NYSE Composite actually ticked a new bear low yesterday, NYSE new lows came in at “only” 379, vs. 1,092 in mid-June.
Then there’s our Aggression Index, which compares the Nasdaq (growth stocks) to the Consumer Staples Fund (XLP)—while the Index isn’t positive (it would need to be above a rising 10-week moving average for that), it’s flattened out now for two months, which goes along with the improved relative strength in many growth funds and stocks. Indeed, while they haven’t lit the world on fire, most of the setups and nascent breakouts mentioned last week have held up this week.
There’s also the action of the indexes themselves, with lots of alternative up/down weeks of late, which after a big decline tell you the bulls are finally putting up a fight.
There’s more, but you’ve heard the gist before—the market has done a good job ignoring bad news (including much higher inflation this week and fears of a possible 100-basis-point Fed rate hike) in recent weeks, which puts it in the position to do something positive going forward … possibly with earnings season, which is just getting underway, being a catalyst.
But, of course, we have to actually see it happen to take any major action—resilience and waning downside momentum are nice, but for any major buying, we’re going to need to see things actually go up. On that note, next week could be interesting—a solid rally could be enough to flip the intermediate-term trend back up by our measures, with rallies back above this week’s highs on the big-cap indexes (~3,900 on the S&P, 11,750 on the Nasdaq) and a good push from broader measures likely doing the trick.
We’ll be watching, and ready to take some action if the buyers really step up. But until then, it’s best to remain defensive. Our Market Monitor remains at a level 3.
SUGGESTED BUYS:
Argenx (ARGX) is another biotech that’s setting up nicely in a huge base south of resistance. We’re not opposed to a nibble on this retreat with a stop just under the 50-day line (near 330 or so)—and if things kick into gear, adding more on a decisive push north of 385.
Many Chinese stocks have pulled in a bit, but most are still intact. JD.com (JD) is still stuck below its 200-day line, but held support at its 50-day line during this latest dip—if you don’t own any, we’re OK with a small buy here, a tight stop (near 56) and possibly adding more above 67 or so if the bulls return to the market.
Royalty Pharma (RPRX) has seen a huge volume dry-up of late just south of key resistance—a very, very nice looking setup. Hold on if you own some, and you can consider a nibble on a strong push above 44 or so.
SUGGESTED SELLS:
Partial sale – Ollie’s Bargain Outlet (OLLI) – if you added it with us, we think selling a portion up here makes sense and then let’s see if the stock’s major turnaround can continue in the weeks/months ahead.
Ulta Beauty (ULTA) – tripped stop
SUGGESTED STOPS
Alkermes (ALKS) near 28.5
BJ’s Wholesale (BJ) near 64.5
CrowdStrike (CRWD) near 154
Dollar Tree (DLTR) near 156
Enphase Energy (ENPH) near 178
Funko (FNKO) near 22
JD.com (JD) near 56
Nexstar Media (NXST) near 159
Neurocrine Bio (NBIX) near 89.5
Pinduoduo (PDD) near 52
Scorpio Tankers (STNG) near 29
SolarEdge (SEDG) near 252