The market is getting hit hard this morning for the first time in a couple of weeks. Even so, we remain bullish because the evidence is mostly positive.
First and foremost, our indicators tell us the intermediate- and longer-term trends are pointed up. If you want to argue the trends are sideways-to-up, that’s fine, but they’re tilted up right now.
Second, whether you’re looking at the advance-decline line (nearing new highs) or the number of stocks hitting new lows (single digits on the NYSE in recent days), it’s clear the broad market is in great health. That’s in stark contrast to the few times the market rallied to these levels in 2015—back then, the broad market was in shambles, but today it’s looking good.
Third, more and more stocks are acting well. Not many have hit new highs (see below), but many have set up nicely during the past five weeks, and more than a few have emerged on earnings during the past couple of weeks.
On the negative side, the most obvious challenge is the overhead resistance seen in most major indexes, in particular the 2,100 to 2,130 level on the S&P 500. The market again bumped up into that area yesterday before fading this morning. And we still haven’t seen a major expansion in the number of new highs.
Looking ahead, a decisive push above resistance in the indexes (accompanied by many more stocks hitting new highs) would have us fully bullish. On the flip side, a break back below the 50-day lines in the major indexes would turn the overall trends decidedly neutral—causing us to take a step or two back.
Right now, though, we’ll leave our Market Monitor in bullish territory. We think dips and consolidations in strong stocks are buyable.
Buy Ideas
Agnico Eagle (AEM 49) looks like the leading gold stock, and that group is getting a huge lift this morning, with AEM gapping to new highs. We still think gold needs a bit more time (and quiet trading) before lifting off again, but if you don’t own any, we’re OK buying a half-sized position in AEM around here, using a loose percentage stop near 42.
Similar to the overall market, AMN Healthcare (AHS 38) dipped to its 50-day line during the middle of last month and then rebounded strongly toward its old highs in recent days. It looks buyable around here or on dips toward 37.5, with a stop around 35.
Broadcom (AVGO 163) gapped up on earnings this morning, though it’s giving some of those gains back because of the weak market. Still, the push to new highs is obviously encouraging—you can buy some in the low 160s with a tight percentage stop around 150.
Crescent Point Energy (CPG 17) isn’t as strong as some energy stocks, but after a nice run into late-April, the stock has pulled back and quieted down just below resistance. You could nibble here with a stop at 15, or wait for a decisive breakout above 18 before buying.
Cynosure (CYNO 49) has built a brief five-week base that’s held above its 50-day line; the stock also enjoyed a great volume clue on Wednesday as buyers rushed in. If you don’t own any, you could start a position here with a stop below the 50-day line (near 46), and then look to add to your position on any decisive push above 51.5.
Martin Marietta Materials (MLM 186)
enjoyed a nearly uninterrupted run from its lows in February to its highs last month. Now it’s pulling back, nearing its 25-day line. The dip could continue, but we think this weakness provides a good risk-reward situation—you can buy here with a tight percentage stop near the 50-day line at 174.
Some steel stocks have broken down, but a few are still acting well. Reliance Steel (RS 75) is one of them—it based out for about a month in the 70 to 74 area, eked out to new highs last week and has traded tightly since. If you’re game, you can buy some here with a tight stop near 70.
Wynn Resorts (WYNN 97) has etched its first launching pad since bottoming in January—a shallow (14%), eight-week structure, and shares have rebounded toward the top of it. We don’t advise jumping in with both feet here, but you could buy a small amount if you’re not already in (no more than half your normal position size) with a stop near 90. Then look to fill out your position on a decisive breakout above 102 in the weeks ahead.
Sell Ideas
For the second week in a row we have no sells, however, we have two points.
First, don’t forget to book some partial profits in stocks that you develop some quick profits in—if you’re up 10% to 15% over just a couple of weeks, or if you’re up 20% to 25% over a couple of months, consider selling one-third of your shares and holding the rest. One idea on this front would be Communications Sales & Leasing (CSAL 26), which is spurting higher today as rates plunge.
Second, we continue to tighten stops on existing positions (as well as add a few new stops to the list). Should the market sell off much from here, we’ll get knocked out of many names as they crack support. And if the market revs higher, we’ll look to sell stocks that don’t participate in the rally. But today, we’re fine standing pat.
Here’s the updated list of stops:
Acuity Brands (AYI 252) near 244
Agnico Eagle Mines (AEM 49) near 42
Amedisys (AMED 52) near 49.5
AMN Healthcare (AHS 38) near 35
Banc of California (BANC 20) near 19
Barrick Gold (ABX 19) near 16.5
Broadcom (AVGO 163) near 150
Credicorp (BAP 146) near 135
Crescent Point Energy (CPG 17) near 15
Cynosure (CYNO 49) near 46
CyrusOne (CONE 50) near 45.5
Diamondback Energy (FANG 90) near 83
EBIX Inc. (EBIX 46) near 44
Facebook (FB 118) near 110
Home Depot (HD 132) near 130
Huntsman (HUN 15) near 14
Ligand Pharmaceuticals (LGND 117) near 112
MasTec (MTZ 23) near 21.5
National Storage (NSA 21) near 20
Newmont Mining (NEM 35) near 30.5
Nvidia (NVDA 46) near 40
Pioneer Natural Resources (PXD 159) near 153
Reliance Steel (RS 75) near 70
Sabre (SABR 28) near 27
Silver Wheaton (SLW 20) near 18
Steel Dynamics (STLD 25) near 23.5
TAL Education (XRS 55) near 52.5
Tallgrass Energy (TEP 45) near 43
Texas Roadhouse (TXRH 45) near 42.5
Weibo (WB 27) near 23
Wynn Resorts (WYNN 97) near 90.5
As always, don’t hesitate to email me (mike@cabot.net) with any questions or comments on these or other Top Ten stocks.