After two straight horrible weeks, the major indexes are actually about unchanged so far this week, but that doesn’t really tell the full story. Markets did stage a nice rebound after a tedious early-Monday-morning dip, rallying even after the Fed’s rate hike on Wednesday, but yesterday’s action brought the market right back down to its lows. Meanwhile, while there are a few bright spots out there (mostly energy related), individual stocks are still seeing far more blowups and gaps up on earnings.
We still see many secondary-related positives out there, including sentiment, which has turned very bearish according to many measures, and breadth, where far fewer stocks are hitting new lows these days compared to January and February. Plus, it does feel like we’re getting to the emotional stage of the decline—we’re now seeing overwhelming selling pressure (NYSE down volume topped up volume by 17 to 1 yesterday!) and possibly some forced selling (rumors that a big growth manager or two could be blowing up).
Thus, we really do think it’s worth keeping your head up and eyes open for a change in the market’s character—it seems illogical for it to happen, of course, but a lot of the pieces seen at some major lows are actually in place.
Even so, you know the drill—until we actually see the market react to these secondary positives, there’s not much to do but to stay mostly defensive and play some of the counter-trending areas with small positions. The trends of the major indexes and vast majority of stocks remain down, and it’s certainly possible this “flush” phase will get worse before it gets better.
All in all, then, we don’t have any major changes in advice: Remain defensive and patient, with small positions in resilient names on dips if you’re in the buying mood. In time, this wipeout-type action will clear the air (and knock out all weak hands), resulting in a sustained advance with lots of opportunities. But right now, staying mostly on the sideline is the best course. Our Market Monitor will likely remain at a level 3, though it could drop another notch depending on what comes.
SUGGESTED BUYS
Golar LNG (GLNG) erupted on massive volume in March and early April, then pulled in on lighter volume to the 50-day, where it’s so far found support. We’re OK with a nibble here and a stop near 21.
Westrock (WRK) is still emerging from a long correction, and it got a boost this week after earnings crushed estimates (sales up 21%, earnings up 117%), and it’s the type of name that could counter-trend in a bad environment (13x earnings, 1.8% yield, etc.). A dip of a point or two would be buyable, with a stop near the recent low of 48.
SUGGESTED SELLS
CNX Resources (CNX) – weakest of the natural gas stocks and you wonder if the group is going to get hit, at least short-term, given the environment
Hilton (HLT) – tripped stop
Lululemon (LULU) -- breakdown
Marriott (MAR) – tripped stop
Pacira Pharmaceuticals (PCRX) – breakdown
Palo Alto Networks (PANW) – breakdown
Pure Storage (PSTG) – breakdown
SUGGESTED STOPS
Allegheny Tech (ATI)
near 26
Box Inc. (BOX) near 28
CNX Resources (CNX) near 19
Corteva (CTVA) near 53
Golar LNG (GLNG) near 21
Halliburton (HAL) near 33.5
Marathon Oil (MRO) near 24
Mosaic (MOS) near 58.5
Nutrien (NTR) near 96
Occidental Petroleum (OXY) near 53
Patterson-UTI (PTEN) near 15
Royalty Pharma (RPRX) near 39
United Airline (UTAL) near 44.5