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Movers & Shakers February 12, 2016

Despite this morning’s rally, it’s shaping up to be another rough week in the market, with most indexes currently down a bit more than 1.5% on the week, though obviously that could change by today’s close.

Movers & Shakers Update February 12, 2016
Michael Cintolo, Chief Analyst
Email: Mike@cabot.net
Follow me on Twitter: @MikeCintolo

Despite this morning’s rally, it’s shaping up to be another rough week in the market, with most indexes currently down a bit more than 1.5% on the week, though obviously that could change by today’s close.

In the short-term, this week has brought a retest of the climactic January 20 lows, and there is some good news to report. First, so far, the indexes have generally held just above those lows; the exception has been the Nasdaq, which fell to new lows on Monday, but interestingly, found big-volume support near 4,200 in three of the past four days.

Second, we’ve also seen some positive divergences in the broad market—yesterday brought “only” around 1,200 total new lows on the NYSE and Nasdaq, for instance, compared to about 2,300 on January 20. Thus, the broad market isn’t nearly as weak today as it was three and a half weeks ago.

Combine all of that with horrid sentiment (the spread between the number of bearish and bullish advisors is the largest since 2009), and there’s certainly the potential for a solid short-term lift in the market.

If the market can get off its duff, we do think there could be some profit-making opportunities. Many of the worst sectors of the past year (commodities, transports, industrials, etc.) have held up relatively well during the past three weeks, and we’ve seen some other turnaround-type opportunities (gold stocks, some retail, etc.) lift on earnings. Many of these could stretch higher if the sellers step aside for a while.

However, right now, we’re less sanguine about the intermediate- and longer-term outlook. While this retest (if it holds) would be a good sign, it’s unlikely that a three-week bottoming process would be enough given all the damage to the indexes and individual stocks and sectors—even a normal market correction usually requires a five- to eight-week bottoming process, and there has been so much damage (especially among growth stocks) that it’s likely time will be needed to heal.

Still, as you know, we just take things on a day-by-day basis. If we get some intermediate-term green lights in the days ahead, you could open up your wallet and do a little buying in some newly strong stocks. But right now, the major trends are down, and few stocks are even holding up well. Thus, you should remain defensive, focusing on preserving capital and using any rally to sell broken stocks if you still hold them.

Buy Ideas

Gold stocks have been very strong, with nearly all of them surging to multi-month highs on big volume this week. Our general thought is that this recent surge is bullish from an intermediate-term view (i.e., the group has likely bottomed) … but short-term, it rarely pays to buy gold stocks after a big run.

If you don’t own any gold stocks—we’ve recently featured Agnico Eagle Mines (AEM 35), Barrick Gold (ABX 12) and Newmont Mining (NEM 25)—you could nibble here and use a loose 15% loss limit. Ideally, though, the group consolidates for a week or two, offering a lower-risk entry.

Burlington Stores (BURL 50)
bottomed out in the 40 area during November and December, rallied sharply to 55 (bolstered by some positive business reports) and has since pulled back to the 25-day line. There is overhead to chew through in the 52 to 56 area, but the pullback offers a lower-risk entry—if you’re game, you can buy a little here with a stop near 46.5 (just below the 50-day line).

Cirrus Logic (CRUS 31)
spiked on earnings two weeks ago, and has since backed off from resistance at 35. Thus far, the pullback is normal and CRUS is finding support in the 31 to 32 area. You could consider taking a stab at the stock here with a stop near 29.5.

Many REITs have pulled back sharply, but we’re impressed with the action of STORE Capital (STOR 25), which has consolidated in a tight 24.5 to 25.5 range for the past couple of weeks. If the market does rally for a bit, there is some “rotation risk” here—investors could rotate out of “safe” REITs and into some “risk-on” stocks and sectors—but we do like the chart and the solid (15%-ish) expected growth this year. You could buy a little here with a stop near 23.5.

Take-Two Interactive (TTWO 34)
found humongous-volume support on earnings last week and is perched just a couple of points south of its high. We’re not against nibbling here with a stop near 32.

The Children’s Place (PLCE 62)
looks similar to BURL—it rallied nicely from a low of 47 in November all the way to 67 at the start of this month, before pulling back during the past two weeks. We wouldn’t be surprised to see a bit more weakness (possibly to the 50-day line, now at 59 and rising), but the overall set-up looks decent. You could buy a little with a stop at 58.

Sell Ideas

We had three stocks trip our stops this week: Abercrombie & Fitch (ANF 25), Dollar Tree (DLTR 75) and First Solar (FSLR 60). Honestly, ANF still looks decent—it nicked the stop by a nickel—so if you still own some you could hold on with a tight stop around 23 to 23.5. Officially, though, we’ll stick with our rules, and all three will be listed as Sells in Monday’s issue.

First Republic (FRC 57)
has been caught up in the implosion of banking stocks. It’s a Sell, too.

Ligand Pharmaceuticals (LGND 86) also broke down this week after reporting earnings. It’s not the worst chart out there, but it’s shown too much weakness in the near-term. If you bought a little, cut the loss.

And we’ve adjusted and added some new stops to our list:

Agnico Eagle Mines (AEM 35) near 29.5
Burlington Stores (BURL 50) near 46.5
Diamondback Energy (FANG 68) near 63
Edwards Lifesciences (EW 79) near 72
National Storage (NSA 16) near 15
Rovi Corp. (ROVI 20) near 16
Seaspan (SSW 15) near 14
SolarEdge (SEDG 25) near 22.5
Take-Two Interactive (TTWO 34) near 32
The Children’s Place (PLCE 62) near 58

As always, don’t hesitate to email me (mike@cabot.net) with any questions or comments on these or other Top Ten stocks.