After a month-long market correction, our market timing indicators are now mixed. On an intermediate-term basis, the fact that all the major indexes dipped a percent or more below their 50-day lines is enough to question the post-February market uptrend.
On the other hand, the longer-term trend is still up (call it neutral-to-up if you want), and we’re impressed that the broad market hasn’t shown any signs of duress despite a month of falling prices—the number of stocks hitting new lows remains very tame.
Altogether, there’s little question that the market’s near-term character has changed, so we’ll likely push our Market Monitor down another notch or two in Monday’s issue. We’re mostly neutral here and are taking cues from individual stocks—many stocks are acting well and should be held, but obviously, lots have broken down, too, so be sure to respect your stops and loss limits, and to keep some cash on the sideline. And it’s best to cut back on new buying for now, keeping new positions smaller than normal.
(As an aside, the action of the past few weeks is one reason we like to advise people take some partial profits in stocks that have spurted ahead—doing so in March and April would have allowed you to make a few bucks on many stocks that turned tail during the past month.)
Looking ahead, we advise playing it by the book. If the market continues to bump lower, you should keep your worst performers on tight leashes, and keep the cash from any sales on the sideline. On the upside, we’re looking for a push back above the 50-day lines of all the major indexes (especially the Nasdaq; the 50-day line is at 4,820) to be a sign the post-February rally is resuming.
Thus, for now, we’re cautious, but we’re ready for anything, and will keep you updated on any further changes we see.
Buy Ideas
We’re impressed with how Align Technologies (ALGN 78) has handled itself—the stock has held its 25-day line as it’s crawled higher despite the market’s dip. And it popped to new highs this morning, one of the few stocks in the entire market to do so. If you didn’t buy it two weeks ago, you could start small here with a tight stop near 73.
Most MLPs continue to act well as oil prices hover near their highs. DCP Midstream (DPM 33) has pulled back normally during the past two weeks and is now standing near its 25-day line. You could start a position here with a stop around 30; a push back above 35.5 would offer an opportunity to average up (assuming the market has turned healthy).
Monster Beverage (MNST 148)
has been a very cool customer in recent days, sliding grudgingly following a huge-volume, earnings-induced advance in late-April and early May. It’s not an ideal setup, but we’re OK with a small position here or on dips, with a stop near 140. An eventual push above 157 (and a healthy general market) would be a sign to average up.
Reliance Steel (RS 72)
has held up very well given the dip in steel and commodity stocks—it’s essentially moved sideways since mid-April. It’s right on the edge here (we have a tight stop at 69.5), so keep it on your watch list—any powerful breakout above 75 would be buyable, with a stop on that purchase just above 70.
Silicon Motion (SIMO 42) held up very well during the recent chip stock correction, and now that the group is showing some life (Applied Materials’ bullish earnings report last night is helping the cause), SIMO is pushing to new highs. You could nibble here with a stop in the 38.5 to 39 area.
Sell Ideas
Not surprisingly, the pressure on the market caused another batch of stocks to trip their stops: Core Laboratories (CLB 116), Edwards Lifesciences (EW 100), Franco-Nevada (FNV 64), Lennox (LII 134), Nucor (NUE 47), Ollie’s Bargain Outlet (OLLI 23), PayPal (PYPL 38), Vantiv (VNTV 54) and Zoës Kitchen (ZOES 36) are sells this week.
Kate Spade (KATE 22)
is also a sell as it’s been unable to bounce following a sizable decline.
As always, if you still own one of these stocks that’s snapped back, you can give it a little wiggle room, but we’ll just follow the stops that were presented.
Lastly, here’s the updated list of stops:
Acuity Brands (AYI 251) near 238.5
Agnico Eagle Mines (AEM 45) near 40.5
AMN Healthcare (AHS 36) near 33.5
Banc of California (BANC 19) near 18
Barrick Gold (ABX 18) near 16
Broadcom (AVGO 146) near 140
Credicorp (BAP 146) near 133
Crescent Point Energy (CPG 17) near 15
Cynosure (CYNO 47) near 44.5
CyrusOne (CONE 49) near 44.5
Diamondback Energy (FANG 86) near 81.5
Facebook (FB 117) near 109
Home Depot (HD 133) near 129.5
Huntsman (HUN 14) near 13
MasTec (MTZ 22) near 20.5
National Storage (NSA 21) near 19.5
Newmont Mining (NEM 33) near 30
Nvidia (NVDA 44) near 38
Reliance Steel (RS 72) near 69.5
Sabre (SABR 28) near 27
Silver Wheaton (SLW 19) near 17.5
Steel Dynamics (STLD 24) near 22.5
TAL Education (XRS 54) near 51
Texas Roadhouse (TXRH 44) near 42
Weibo (WB 23) near 21
Wynn Resorts (WYNN 90) near 87
As always, don’t hesitate to email me (mike@cabot.net) with any questions or comments on these or other Top Ten stocks.