What a difference a week makes! During the past few trading days, the market has gone from testing all-time highs on the S&P 500 to being overwhelmed with fears that Britain will leave the E.U., an action many believe would lead to at least some short-term chaos in the financial world.
The result: A sharp correction back into the middle of the market’s post-March trading range.
Instead of focusing on the news and rumors and the latest British polls, right now it’s vital to keep your eyes glued to the market itself (as well as the action of individual stocks). So far, we’ve clearly seen some distribution in the major indexes, and it’s fair to say the intermediate-term trend is basically neutral, with some indexes (small- and mid-caps) looking better than others (Nasdaq).
What we haven’t seen is a rash of breakdowns among leading stocks (just a couple of leaders we track have broken their 50-day lines) or the major indexes, most of which (thanks to Thursday’s big positive reversal) are still hanging around their own 50-day lines. Don’t get us wrong—many stocks are taking on water, but few have sliced through key support yet.
Now, these facts are more descriptive than predictive—there’s nothing that says the market can’t tank next week if things go bad. But the point is that, going with the evidence, the nearly straight-down action hasn’t caused most stocks to implode, and the broad market is taking the selling in stride.
So what should your current stance be? We’re likely to knock our Market Monitor down a notch or two into neutral territory come Monday. We’re adhering to some strict stops on individual stocks, and on the buy side, it’s probably best to cut position sizes so close to a major event (the Brexit vote on June 23). In effect, Brexit is similar to a market-wide earnings release, and we don’t advise plowing into stocks just before earnings.
Going forward, if the market melts down, we’ll quickly move to a defensive stance. But we’ve learned over many decades that it’s usually best to just go with the evidence in front of us—and today, that evidence remains slightly tilted to the bull side.
Buy Ideas
Align Technologies (ALGN 79) has been creeping to new highs in recent weeks, and it’s moved straight sideways just south of 80 this month, even as the market has been tripped up. You could nibble here, but we think it’s best to put it on your watch list—a dip to the 50-day line (near 76) could offer a good buy point, as would a decisive lift above 80. A four- to five-point stop would make sense in either case.
Becton Dickinson (BDX 165)
hasn’t done much since early May, but that’s OK in our book—shares hit a slightly higher high last week before pulling back orderly to its 50-day line. If you want in, you could nibble around here with a tight stop near 161 or so, which is just below the stock’s prior low.
Big Lots (BIG 51) has pulled back on light volume following its monstrous-volume earnings rally at the end of May. Many other retailers are also acting well. If you didn’t buy earlier, you could take a small position here with a stop near 47.
Electronic Arts (EA 74) tried to hit new highs last week, but like everything else, was yanked lower by the market. Even so, the stock has basically formed a relatively tight trading range (72-77 for the most part) since its big earnings gap in mid-May. You could nibble here with a stop near the 50-day line at 70, or just keep it on your watch list.
Fidelity Information (FIS 73)
suffered its first pullback in many weeks, and thus, it could easily fall further. But barring a major market meltdown, we’d guess the 50-day line (now just above 70) will hold. You could buy a little on dips with a stop near 69 or just watch it.
We love the action in both Veeva Systems (VEEV 34) and Zillow (Z 33), two stocks we think can be new leaders of any sustained market advance. VEEV is pausing normally following its huge earnings-induced rally, refusing to give back much of its gains. Z gapped toward its old highs following a lawsuit settlement last week. Neither is near a proper buy range, but both should definitely be on your watch list should this market dip lead to renewed strength following the British vote.
Sell Ideas
Not surprisingly, we did see a few more stocks trip their stops this week as the market has headed south. Acuity Brands (AYI 246), Banc of California (BANC 19), Crescent Point Energy (CPG 16), Pioneer Natural Resources (PXD 154) and Sabre (SABR 27) all tripped out and should be sold.
We’ve also tightened some stops and added a few others to our list this week. Should the market continue to slide, many of our recommendations will be tripped out (most at profits).
Abiomed (ABMD 99) near 95
Adobe Systems (ADBE 96) near 92.5
Agnico Eagle Mines (AEM 50) near 44
AMN Healthcare (AHS 39) near 36.5
Barrick Gold (ABX 20) near 16.5
Berry Plastics (BERY 37) near 36
Boardwalk Pipeline (BWP 17) near 16
Broadcom (AVGO 156) near 151
Credicorp (BAP 153) near 140
Cynosure (CYNO 49) near 47
CyrusOne (CONE 51) near 47.5
DCP Midstream (DPM 34) near 30
Diamondback Energy (FANG 87) near 85
EBIX Inc. (EBIX 47) near 45
Emergent BioSolutions (EBS 39) near 39
Facebook (FB 113) near 110
Global Payments (GPN 74) near 70
Huntsman (HUN 15) near 14.5
MasTec (MTZ 23) near 22
National Storage (NSA 20) near 20
Newmont Mining (NEM 35) near 32
Nvidia (NVDA 47) near 41.5
Oneok Partners (OKS 38) near 35
Reliance Steel (RS 76) near 71.5
Salesforce.com (CRM 80) near 77
Silver Wheaton (SLW 21) near 19
Steel Dynamics (STLD 26) near 24.5
Tallgrass Energy (TEP 46) near 43
Texas Roadhouse (TXRH 45) near 43
Weibo (WB 27) near 24.5
Wynn Resorts (WYNN 103) near 95
As always, don’t hesitate to email me (mike@cabot.net) with any questions or comments on these or other Top Ten stocks.