After a dramatic move during the past three weeks, the market is beginning to quiet down, with the major indexes generally range-bound during the past few trading days. The Nasdaq’s been a bit stronger thanks to some positive earnings reactions, which is usually a good sign.
Overall, our thinking hasn’t changed from a week ago. The market’s various pieces of evidence almost all point to the bull side, and thus, we think a heavily invested position is advised.
That doesn’t mean you should just buy willy-nilly; earnings season is doing its usual job of helping some stocks while punishing others. Risk control is still a must.
Yet overall, the tide is coming in for the bulls, so buying strong stocks as opportunities arise is your best bet.
Our email inboxes are still quiet (summertime, you know), but by far the most common question we’re getting revolves around whether or not there will be a pullback. We’re not big on predicting short-term market moves, but we do have a couple of thoughts.
For the market as a whole, blastoff situations like this usually have only small pullbacks for the first few weeks of the advance. Of course, unexpected bad news could always change that, but 2% or 3% dips might be all you’ll see in the major indexes, at least in the near-term.
However, individual stocks can be different, as rotation among sectors and earnings reports causes stocks to sink or swim. (This week, for instance, we’ve seen many commodity-type stocks retreat.) Thus, it’s still good to try to buy on dips, though except for sudden earnings moves, pullbacks will probably be more limited than we’ve seen over the past few months.
Overall, though, we’re far more interested in the market’s intermediate-term outlook, which remains bullish. We expect higher prices.
Buy Ideas
We continue to like the look of many housing and construction stocks, including Beacon Roofing (BECN 48). Earnings are due out August 2, but we think you could buy a half-sized position around here with a stop near 44.
Becton Dickinson (BDX 173) is another stock that’s pulling back grudgingly during the market’s recent pause. It looks buyable around here with a tight percentage stop near 166. Earnings are due out August 4.
Big Lots (BIG 53) hasn’t done much since its monstrous-volume, earnings-induced gap up in late-May, but it’s now etched a good-looking base. You could nibble here with a stop near 49, or you can buy on a big move above 54.
Dollar Tree (DLTR 95) isn’t a fast stock, but it gapped up on gigantic volume in late May and has stair-stepped its way higher since then. Now it’s moved sideways for a couple of weeks and is testing its 25-day line. You can buy this conservative growth stock around here with a stop near 90.
While oil prices have faded, most oil stocks are still hanging in there. Newfield Exploration (NFX 44) is one of the resilient stocks in the group, and it’s trading tightly within a smooth, post-February uptrend. We think you can buy around here with a stop near 41.5. Earnings are due August 3.
Ultimate Software (ULTI 217) is in the midst of a nice, tight pause as it consolidates its sharp upmove post-Brexit. The only problem is that earnings are out next Tuesday. You could nibble here if you really want in, but otherwise just watch it—a solid earnings reaction would likely be buyable, as ULTI stands just above a multi-month base.
Veeva Systems (VEEV 36)
surged to new highs on big volume after the market’s late-June low and has since pulled back a bit while tightening up above its 25-day line. We think it’s buyable around here with a stop in the 32.5 area.
Sell Ideas
We think you can book partial profits in both Acacia Communications (ACIA 61) and Silicon Motion (SIMO 51) here. Both have had big runs, and in the case of SIMO, is showing a little abnormal action after earnings. (It’s not broken but today is a yellow flag.) If you have good profits, consider selling one-third of your shares in each and holding the rest.
We also think it’s time to sell Haliburton (HAL 43), which, despite signaling a bottom might be in for North American drilling, has seen its stock sag.
And here’s our latest list of stops:
Agnico Eagle Mines (AEM 53) near 49.5
Amazon (AMZN 748) near 695
AMN Healthcare (AHS 44) near 39.5
Barrick Gold (ABX 21) near 19.5
Big Lots (BIG 53) near 49
Boardwalk Pipeline (BWP 17) near 16.5
Boston Scientific (BSX 24) near 22.5
Continental Resources (CLR 45) near 41
Credicorp (BAP 160) near 146
CyrusOne (CONE 54) near 51.5
Electronic Arts (EA 76) near 74
HD Supply (HDS 36) near 34
L-3 Communications (LLL 147) near 141
Masimo (MASI 52) near 50.5
Newmont Mining (NEM 41) near 36
Nvidia (NVDA 54) near 46
Oneok Partners (OKS 42) near 38.5
Parsley Energy (PE 28) near 25.5
Penumbra (PEN 59) near 57.5
RSP Permian (RSPP 35) near 32.5
Sanmina (SANM 29) near 26.5
Silver Wheaton (SLW 26) near 22.5
Texas Roadhouse (TXRH 48) near 44.5
TransDigm (TDG 271) near 256
Universal Display (OLED 68) near 65
VCA Inc. (WOOF 68) near 65
Weibo (WB 33) near 28
As always, don’t hesitate to email me (mike@cabot.net) with any questions or comments on these or other Top Ten stocks.