The market is now in its 17th day of consolidation from its mid-April highs, and that’s stretching our intermediate-term trend indicators to their limit. Most of the major indexes we track are a bit above or below their 50-day moving averages (the Nasdaq is clearly below), so any weakness from here could put a fork in the intermediate-term uptrend that started in February.
Among individual stocks, the action remains mixed. Some stocks and sectors are acting totally fine, while others are being obliterated on poor earnings reports. (Big, old retail outfits like Nordstrom’s (JWN) and Macy’s (M) are examples this week.) Even some of the recently strong commodity stocks have taken big hits, and we’ve been knocked out of many Top Ten stocks in recent weeks.
The recent decline hasn’t been that bad on an absolute basis. The Nasdaq, which is the worst performing major index lately, has pulled back a maximum of 5.7%, following an 18% rally from its lows. Other indexes have retreated 3.5% to 5.0% after 17% to 21% rallies. Not exactly a disaster.
Even so, the intermediate-term situation is on the fence. If support shows up around here and the post-February uptrend resumes, we think there will be a lot of good buying opportunities—stocks that have held up lately look poised to get going if the market gets out of the way.
But that’s a big if. Right now, we’re keeping our Market Monitor just outside of bullish territory, and the next few days should be telling—a breakdown by the major indexes will have us pulling back further. Stay tuned.
On a longer-term basis, we’re a little more sanguine. Yes, the major indexes are still stuck below their 2015 resistance levels (2,100 to 2,140 on the S&P 500; 5,000 to 5,200 on the Nasdaq), but the combination of the huge panic in January/February, the fact that the broad market hasn’t fallen apart in the past three weeks, a dearth of bullish sentiment (good from a contrary point of view) and some blastoff indications in March and April bodes well down the line.
All told, you shouldn’t dramatically change your stance right now, but (a) be sure to honor your stops and loss limits and (b) it’s probably a good idea to keep new positions smaller than normal until the bulls make a stand.
Buy Ideas
Interestingly, while oil service stocks have taken a hit of late, many of the favored oil explorers (especially those in the Permian Basin) are acting fine. Diamondback Energy (FANG 87) has set up a shelf just below 89 as it rides its 25-day line higher. It’s choppy, but a small position here with a stop near 80 makes sense, or you could wait to buy on a push above 89.
Parsley Energy (PE 25) is even stronger than FANG, as it tested its 50-day line earlier this month and surged to new highs this week. Dips of a point would be tempting, with a stop near 22.5
HD Supply (HDS 33) has pulled back with most mid-cap stocks since late-April on whisper-quiet volume, and the 50-day line (now at 32.5) is approaching. Earnings are likely out late this month or in early June, which is a risk, but we’re OK with a small buy here and a stop near 31 … then you can look to add more shares if the stock reacts well to earnings, leaping above 35.5 in the weeks ahead.
Ligand Pharmaceuticals (LGND 117) has a nearly perfect set up on the chart, breaking out and following through nicely in April and now pulling back to the top of its prior base. The only issue here is the sector—biotech stocks are among the worst in the market. Even so, we’re OK taking a stab at the stock here—a half-sized position here with a tight (percentage) stop around 109 seems like a solid risk-reward.
Nvidia (NVDA 40) gapped up strongly on earnings this morning; volume this morning was extraordinary (it traded its average daily volume in the first 10 minutes of trading!), a sign of very strong demand. Many of these earnings gaps haven’t worked that well recently, but NVDA is clearly a leader and the power is impressive. You can buy a little here, using a looser stop near 35.
Like most commodity stocks, the steel sector has come under some pressure, but most of its components are still hanging in there. Reliance Steel (RS 73) has been consolidating for four weeks and is close to its 50-day line. You could nibble here, but our advice would be to wait to buy on a leap above 74.5, using a tight stop near 70.
Compared to other chip stocks, Silicon Motion (SIMO 40) has handled itself nicely during the past three weeks; there have been some gyrations but it’s held its 10-week line nicely, and is now hovering around 40 on very light volume. You could nibble here with a stop near 37, or just wait for a decisive push above 42. Sales and earnings trends look great, though the stock is thinly traded ($20 million of volume per day).
Sell Ideas
We have five sells this week, most coming from stocks that have tripped their stops. Anglogold (AU 16), Five Below (FIVE 40), Trex Company (TREX 42), Whirlpool (WHR 171) and U.S. Steel (X 14) all will be listed as sells in Monday’s issue. Some stocks have bounced back from tripping their stops, so if you happen to still own them, you can hang on. But for our tracking, we’ll stick with our rules and list these stocks as sells.
Lastly, here’s the updated list of stops:
Acuity Brands (AYI 251) near 236 Agnico Eagle Mines (AEM 47) near 39.5
Banc of California (BANC 19) near 18
Barrick Gold (ABX 19) near 15.5
Broadcom (AVGO 141) near 139
Core Laboratories (CLB 118) near 115
Crescent Point Energy (CPG 16) near 14.5
CyrusOne (CONE 49) near 44
Diamondback Energy (FANG 87) near 80.5
Edwards Lifesciences (EW 104) near 98.5
Facebook (FB 120) near 109
Franco-Nevada (FNV 68) near 63.5
Lennox (LII 138) near 132
National Storage (NSA 22) near 19.5
Newmont Mining (NEM 34) near 29.5
Nuecor (NUE 47) near 46
Nvidia (NVDA 40) near 35
Ollie’s Bargain Outlet (OLLI 24) near 23.5
PayPal (PYPL 40) near 37.5
Sabre (SABR 29) near 27
Silver Wheaton (SLW 19) near 17.5
TAL Education (XRS 53) near 51
Texas Roadhouse (TXRH 44) near 42
Vantiv (VNTV 56) near 53
Weibo (WB 23) near 20.5
Wynn Resorts (WYNN 92) near 87
Zoës Kitchen (ZOES 38) near 36.5
As always, don’t hesitate to email me (mike@cabot.net) with any questions or comments on these or other Top Ten stocks.