First and foremost, our office will be closed on Monday for Independence Day, so your next issue of Top Ten Trader will be emailed to you on Tuesday after the market’s close. Have a great long weekend!
As for the market’s action: Wow! Everyone knows the market has done a dramatic U-turn since the punishing two-day, post-Brexit decline, with most indexes making up 80% or more of their declines. The question is, what does it mean? Here are our thoughts:
First and foremost, from a big picture standpoint, we’re still somewhat neutral—every index remains in its two- to three-month trading range. And, of course, every index is still below the key resistance levels that have capped the market since late 2014, too.
That said, we’re very, very encouraged by the action since Monday. Just looking at the numbers, both Tuesday and Wednesday saw more than 90% of all volume on the NYSE flow to stocks that closed higher on the day, an unusual sign of buying power.
In fact, back-to-back “90% up days’” when the S&P 500 is above its 200-day line has happened just three other times since 1965 (usually portending positive results a few months out). At the very least, such a powerful, broad-based rebound tells us a low is likely in.
Moreover, longer-term, we think there’s a chance the Brexit plunge could mark the final shakeout of the 20-month up-and-down period in the market—an event that potentially crystallized all the economic worries that had been building up, knocking out what weak hands remained.
Even so, we don’t want to get ahead of ourselves. We’re certainly more constructive than we were a few days ago based on the evidence, but there are clearly many barriers still to overcome, not to mention the possibility of Brexit “aftershocks.”
We’ll probably move our Market Monitor back up a notch or two, but you should still tread carefully—if you built up some cash (very likely considering the shakeout), putting some back to work makes sense, but we’d still favor keeping positions small and using loose stops (to handle any downside volatility that comes).
Should this upmove morph into a sustained rally, there should be tons of good buying opportunities because stocks of all stripes have set up nice launching pads. But, while we’re optimistic, it’s best to go slow and make the market prove it wants to go higher after its recent rebound.
Buy Ideas
Abiomed (ABMD 110) certainly looks like a potential leader—the stock held its 50-day line and recent low during the Brexit selloff and has spiked to multi-month highs. There’s still a little overhead left near 110, but we’re OK with a small position here or on dips of a couple of points, with a stop down at 97.
Amazon (AMZN 726)
was the most resilient big-cap growth stock during the market’s dip, and it’s now just a few points from new highs. You can start small here with a stop around 675.
Dave & Buster’s (PLAY 46) has been tossed around of late, but taking a step back, we think its pullback (not even down to its 25-day line) looks normal given what’s going on. If you don’t own some, a small buy here with a stop down near 42.5 has a good shot at working.
Lululemon’s (LULU 75) rebound in recent days has been excellent—its two-day dip found support at its 50-day line and it’s since surged to multi-month highs on good volume. We don’t expect a straight-up move, but if you want in, buying a little here or on dips of a point or two should work, with a stop at 67.
Martin Marietta (MLM 190) and Vulcan Materials (VMC 120) each had basically one-day declines following Brexit (they both fell hard on Monday), but they held their 50-day lines and have snapped back toward their old highs. We’re not opposed to a small purchase in either MLM or VMC with stops at 179 and 113, respectively. Or you could wait for each stock to hit new highs before buying (195 for MLM and 122 for VMC).
Monster Beverage (MNST 161) isn’t going to be a rocket, but the stock held up very well in recent weeks, with a couple of dips to its 25-day line before finding support, and now the stock is toying with new high ground. Small buys on dips to 160 or below could work, with a stop around 149.
Symantec (SYMC 20) pulled back with Brexit, following a gigantic, acquisition-induced run in the middle of June. Some more backing and filling is likely, but after such a powerful run, it’s likely SYMC will eventually enjoy another leg up. You can nibble here or (preferably) on dips to 20 or below, with a stop around 18.5.
For a thinner stock, Weibo (WB 29) continues to act beautifully. Shares barely were dented during the Brexit selloff, and are now crawling their way toward their prior high of 29.5. We’re OK with a small buy here or on dips, with a stop near 25.
Sell Ideas
We’re glad to own some gold stocks and REITs, as both groups are thriving due to ever-lower interest rates. That said, if you haven’t booked any partial profits in these names, now is probably a good time to think about doing so—any increase in rates will likely have these stocks pull back sharply, and the yield sectors as a whole are “crowded.”
Other than that, we have no sells this week after letting go of many of our worst performers last week and on Monday. Here’s our latest list of stops:
Abiomed (ABMD 110) near 97
Agnico Eagle Mines (AEM 55) near 47.5
AMN Healthcare (AHS 40) near 37.5
Barrick Gold (ABX 22) near 18.5
Boardwalk Pipeline (BWP 17) near 16.5
Cornerstone OnDemand (CSOD 40) near 36.5
Credicorp (BAP 154) near 140
CyrusOne (CONE 55) near 50
HD Supply (HDS 35) near 32.5
Jacobs Engineering (JEC 50) near 47.5
Newmont Mining (NEM 40) near 34.5
Nvidia (NVDA 47) near 43
Oneok Partners (OKS 40) near 37
Parsley Energy (PE 27) near 24.5
Penumbra (PEN 59) near 55.5
RSP Permian (RSPP 35) near 32.5
Sanmina (SANM 27) near 25.5
Silver Wheaton (SLW 25) near 20.5
Texas Roadhouse (TXRH 45) near 43.5
VCA Inc. (WOOF 67) near 63.5
Weibo (WB 29) near 25
As always, don’t hesitate to email me (mike@cabot.net) with any questions or comments on these or other Top Ten stocks.