The market remains in pullback mode, with the major indexes topping in mid-April and steadily slipping since then. The Nasdaq has, by far, fared the worst, falling about 5.5% and trading below its 50-day moving average for the most of the past week. Some key sectors like semiconductors, retail and transports are also below their 50-day lines.
But, as of now, the other major indexes we track have had milder retreats (3% to 4.5%) and are hovering right around their 50-day lines after this morning’s unemployment report. Thus, from a top-down perspective, the market’s trends are still up, though obviously the next few days will be telling.
As for individual stocks, the action hasn’t been pretty (we have a bunch of sells this week—see below), but our biggest beef is the same issue we’ve been writing about for many weeks—there are a lack of new highs among high relative-strength stocks that have some risk-on component, such as commodities, industrials or, of course, true growth stocks. Many “yield” sectors (REITs, utilities, etc.) are doing fine, but for this rally to persist, we’ll need to see growth-oriented stocks do more than just bounce off their February lows.
All in all, we’re likely to nudge down our Market Monitor a notch next week, but our main focus will be on how the market reacts now that most indexes have fallen to support. If the market holds here and resumes its uptrend, it could provide many enticing buying opportunities. However, a decisive, across-the-board break of support would have us trimming our sails and moving toward a more neutral stance.
For now, you should take things on a stock-by-stock basis. Some stocks look fine, and if you own them, you can sit tight—but be sure to honor your stops and loss limits for those that come under pressure.
As for new buying, we’re not opposed to it, especially if you have a lot of cash on the sideline—there are still many good-looking stocks out there. But if you’re already leaning bullish, we advise sitting tight.
Buy Ideas
Just to repeat what we just wrote—these are some ideas for current/future buying, but unless you have a huge cash position, you should probably wait for the market to find support before putting much more money to work.
Adobe Systems (ADBE 93) hasn’t done much during the past few weeks, which is a negative, but it’s one of the few stocks that remain very tight and ready to get going if the market can do the same. You could nibble here with a tight stop near 89, or look for a breakout above 97 in the weeks ahead.
Given the market’s recent dip, we like the tight post-earnings action in Facebook (FB 118) in recent days. We’re OK buying some around here with a stop in the 108 area.
Biotech stocks remain out of favor, but Ligand Pharmaceuticals (LGND 116) is tempting, having surged persistently from 94 to 132 and now pulling back to 116 or so. We’d prefer to see the stock find some support before buying, but a small position here with a stop at 108 could work.
MasTec (MTZ 21) had a big shakeout to its 50-day line on earnings this morning, but is currently well off its lows and still in a solid uptrend. You should probably wait until day’s end to make sure there’s no follow-on selling, but a small buy here with a stop near 20 is a good risk-reward trade.
National Storage (NSA 21)
held up the best of all the self-storage REITs during the group’s recent dip, and now that the sector is finding buyers, NSA is set up in a nice, five-week flat base. You could buy a little here with a stop near 19.5, and consider adding shares on a push above 21.7.
Parsley Energy (PE 24) just tested its 50-day line for the first time during its advance and immediately bounced well on great volume. It’s a choppy stock, but we’re OK with a small buy here and a stop near 21.5.
Sell Ideas
With the market’s weakness of late and earnings season still going, we have another round of sells this week. The following 13 are sells:
3D Systems (DDD 13), Coherent (COHR 90), Finisar (FNSR 16), HP Enterprise (HPE 19), KB Home (KBH 13), Motorola Solutions (MSI 68), Priceline.com (PCLN 1,247), Randgold (GOLD 89), Sonic (SONC 33), Sprouts Farmers Market (SFM 26), Square (SQ 11), which tripped its loss limit, Tesla Motors (TSLA 212) and Universal Display (OLED 56). OLED tripped its stop this morning but has rebounded nicely during the day—if you own some, you can give it a chance above 53.5, but we’ll list it as a sell because of the stop.
As usual, if you got caught in a bad situation (such as an earnings gap), it’s OK to sell most of your shares and hold onto some, aiming to let the rest go on a bounce. But especially on a decisive breakdown, you shouldn’t just hold and hope—honor your stops and loss limits.
Lastly, here’s the updated list of stops:
Acuity Brands (AYI 245) near 232
Agnico Eagle Mines (AEM 46) near 38.5
Anglogold (AU 16) near 14
Barrick Gold (ABX 19) near 15
Broadcom (AVGO 140) near 139
CyrusOne (CONE 48) near 43.5
Diamondback Energy (FANG 86) near 80
Edwards Lifesciences (EW 104) near 98
Facebook (FB 118) near 108
Five Below (FIVE 39) near 38
Franco-Nevada (FNV 70) near 62.5
Lennox (LII 136) near 131
National Storage (NSA 21) near 19.5
Newmont Mining (NEM 34) near 28.5
Nvidia (NVDA 35) near 33.5
Ollie’s Bargain Outlet (OLLI 25) near 23.5
PayPal (PYPL 39) near 37
Sabre (SABR 29) near 26.5
Silver Wheaton (SLW 20) near 17
TAL Education (XRS 54) near 51
Texas Roadhouse (TXRH 43) near 41.5
Trex Company (TREX 46) near 45
Vantiv (VNTV 55) near 52.5
Whirlpool (WHR 176) near 170
Wynn Resorts (WYNN 89) 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.