The market’s action continues to impress, with the S&P 500 hitting new all-time highs and other indexes and leading stocks racing higher. While there are no sure things in the market, the evidence is now strongly bullish—the odds greatly favor higher prices in the weeks and months ahead.
That evidence includes positive intermediate- and longer-term trends of the market; a healthy broad market, with very few stocks hitting new lows and a rising number reaching new highs; many individual stocks lifting out of long basing periods and following through to the upside (that follow-through was sorely lacking during the past 18 months); two more “blastoff” indicators flashing since the Brexit low that portend meaningfully higher prices in the months ahead; and apathetic investor sentiment, measured from surveys and money flows.
Now, none of this means we can’t see a near-term pullback, especially after the recent run. And it also doesn’t mean every stock and sector is doing to kite higher—in fact, with earnings season getting underway, there’s sure to be some disappointments. Thus, it’s key to stay on your game—keep losses small, ride your winners and be aware of shifting leadership or stocks that form multi-month tops.
Still, while there are never any guarantees in the market, the stars seem to be aligning for a rally in the market. How far or how long is anyone’s guess, but after 18-plus months of choppy, back-and-forth action, there’s a good chance of a sustained upmove.
As always, we’ll simply take it week-by-week and go with the evidence. Today that means working to become fully invested, focusing on current leading stocks, and keeping an eye out for new leadership that emerges.
Buy Ideas
B&G Foods (BGS 47) blasted off in late-April and has buoyant earnings estimates for 2016. Shares are beginning to take a breather, though they’re still above the 25-day line. Dips below 47 would be tempting, with a stop near 44. Earnings are due out July 28, so you should keep new buys smaller than normal.
Energy MLPs have been consolidating for a few weeks, and Boardwalk Pipeline (BWP 17) is no exception—the stock has tightened up between 16.5 and 18 since early June. We think you could buy a half-sized position around here with a tight stop near 16.5, and then look to add shares on a decisive move above 18. Earnings are due out August 1.
Electronic Arts (EA 78) tested its 50-day line during the Brexit shakeout, then moved straight up to new highs near 80 on solid volume. It’s paused since, presenting a solid risk-reward situation—you can buy around here with a stop near 74.
HD Supply (HDS 36)
is back near the top of a big, year-long base. We can’t say it’s in a real uptrend yet—the stock has been consolidating since late-April—but we like the business and the long-term chart. You can consider buying a small position here and add to it on the way up. A stop near 33.5 makes sense.
TAL Education (XRS 61)
has a solid set-up. The stock burst to new highs in June, rallying 11 straight days before and after Brexit. Since then, it’s pulled back for a few days toward the top of its prior base. Earnings are due out July 26, so we’d keep new positions small, but a buy here and a stop around 56 could work well.
Texas Roadhouse (TXRH 47) has been stair-stepping its way higher since a huge earnings gap in late-February. The stock recently lifted above a tight five-week consolidation on decent volume—it looks buyable around here with a stop around 44.
Sell Ideas
With just about everything levitating higher during the past two weeks, we have no new sells today, but remember to book partial profits on the way up, especially if you’ve earned some quick profits. We’ve also tightened most of our stops, so should the market have a shakeout, we’ll be dumping our weakest recommendations and holding our more resilient positions.
Here’s our latest list of stops:
Agnico Eagle Mines (AEM 56) near 49
Amazon (AMZN 738) near 695
AMN Healthcare (AHS 44) near 38.5
Barrick Gold (ABX 21) near 19.5
Big Lots (BIG 51) near 48.5
Boardwalk Pipeline (BWP 17) near 16.5
Continental Resources (CLR 46) near 40.5
Credicorp (BAP 157) near 144
CyrusOne (CONE 54) near 51
Haliburton (HAL 45) near 42.5
HD Supply (HDS 36) near 33.5
Masimo (MASI 53) near 50
Newmont Mining (NEM 41) near 36
Nvidia (NVDA 53) near 45
Oneok Partners (OKS 42) near 38
Parsley Energy (PE 29) near 25.5
Penumbra (PEN 60) near 57
RSP Permian (RSPP 35) near 32.5
Sanmina (SANM 29) near 26.5
Silver Wheaton (SLW 26) near 22
Texas Roadhouse (TXRH 47) near 44
TransDigm (TDG 271) near 253
VCA Inc. (WOOF 68) near 64.5
Weibo (WB 32) near 27.5
As always, don’t hesitate to email me (mike@cabot.net) with any questions or comments on these or other Top Ten stocks.