The major indexes are down modestly on the week, but that doesn’t tell the story of what happened under the market’s hood. While the first half of Monday was solid, there’s been intense selling pressure on the broad market ever since, and especially on high relative strength stocks like those in Top Ten.
Because of the damage, we’re likely to push our Market Monitor down another notch or two in Monday’s issue. While we don’t advise selling everything wholesale, it’s best to hold a good chunk of cash and limit new buying to just small positions until the storm passes.
None of this is to say the market is necessarily set up for a huge fall—don’t forget that the major indexes are all just 3% to 4% from all-time highs, so it would only take a couple of solid up days in the market for the picture to look a lot brighter.
In fact, looking at the chart, the major indexes have had two quick legs down since early September—one that ended September 12, and another that found support on October 13. It’s possible we’re starting a third leg down, which is typical of selloffs, and usually brings lots of pain and a fair amount of panic … and sets the stage for a sustained rally.
Throw in the fact that the longer-term trend remains positive, support near 2,100 on the S&P 500 should be stout, and that many liquid growth stocks are still holding their own, and there are plenty of reasons not to get too discouraged.
Even so, we have to deal with the here and now. While we don’t advise selling everything wholesale, there’s no doubt that the intermediate-term trend is tilting lower, that many stocks have broken down and, most importantly, no money has been made (by bulls or bears) for the past couple of months. Thus, you should be cautious until the buyers prove they’re back in control.
BUY IDEAS
Apache (APA 62) has fallen off with everything else, but it’s a big-cap name that’s above its 50-day line, and the huge-volume blastoff in September (on news of a major new find in the Permian) tells us big investors will probably support the stock near here. If you want in, we’re OK with a small position and a tight stop near 58. Earnings are due out November 3.
Arista Networks (ANET 86)
took a big hit during the market’s early-October dip, but it’s rebounded back above its 50-day and hasn’t been touched by this week’s selling, which is interesting. Earnings are out next Thursday (November 3), and buying a networker ahead of a report is always high-risk. Still, this is an encouraging pattern—keep it on your watch list if you don’t own it, and if you want to, you can nibble here with a stop near 79.
Cirrus Logic (CRUS 57) has done a nice job of resisting the market’s downward pull this month, and today, the stock is reacting decently to earnings. We’d like to see how it closes the day, but this is one for your watch list—a push above 57 (and a healthier market) would be very bullish.
Great Plains Energy (GPRE 26) has pulled back calmly during the past three weeks and found some support near its 50-day line. Earnings are due out next Tuesday (November 1); you could nibble here if you’re very aggressive, but otherwise, watch the reaction to earnings—a push above 27 would be tempting with a tight stop near 25.
Micron Technology (MU 18)
is just a stone’s throw from new high ground, which is impressive. Earnings are out of the way, so any relief in the market could see the stock get going. You could consider buying a small amount on a push above 18.3, with a stop just under 17.
Quanta Services (PWR 29) has totally ignored the selling this week as it hovers near recent highs and above its 25-day line. Nibbling here or on dips as low as 27.5 could work, with a stop around 26.
SELL IDEAS
Not surprisingly given the damage seen this week, another slew of stocks tripped their stops. These stops continue to protect profits for us, and this week, the stops provided some solid exit points, as many stocks have continued to fade after tripping us out.
Etsy (ETSY 143), Gigamon (GIMO 55), Eagle Pharmaceuticals (EGRX 62), Ingevity (NGVT 41), Lumentum (LITE 39), Masimo (MASI 57), NuVasive (NUVA 60), PDC Energy (PDCE 64), Penumbra (PEN 66), Rice Energy (RICE 24), Tech Data (TECD 78), Thor Industries (THO 80), Wix.com (WIX 42)
and Zeltiq Aesthetics (ZLTQ 33) are all sells.
As a note, Gigamon (GIMO 55) is surging this morning on earnings, so if you still own some, you can give it some rope with a stop near 49.5. But for our records, we’ll follow the stop, which was tripped this week.
Other sells include Abiomed (ABMD 105), Carrizo Oil & Gas (CRZO 37), GrubHub (GRUB 39) and Nevro (NVRO 94), all of which have broken down on earnings or just because of the market’s pressure.
And lastly, if you have a good profit in Finisar (FNSR 28), we think you should take partial profits here, selling one-third to one-half of your shares, with a stop for the rest near 25.5.
SUGGESTED STOPS
Adobe Systems (ADBE 108) near 102.5
Aerie Pharmaceuticals (AERI 34) near 31
Amazon (AMZN 785) near 760
Apache (APA 62) near 58
Applied Materials (AMAT 29) near 27.5
Arista Networks (ANET 86) near 79
Autodesk (ADSK 72) near 67
Cirrus Logic (CRUS 57) near 49.5 Copa Holdings (CPA 92) near 82.5
Diamondback Energy (FANG 98) near 93
Finisar (FNSR 28) near 25.5
Green Plains Energy (GPRE 26) near 24.5
Micron Technology (MU 18) near 16
NetApp (NTAP 34) near 32.5 NetEase (NTES 265) near 235 Nvidia (NVDA 72) near 63 Parsley Energy (PE 35) near 33
PRA Health Sciences (PRAH 52) near 49
Shopify (SHOP 41) near 40
Symantec (SYMC 25) near 23 Tata Motors (TTM 40) near 38.5
TD Ameritrade (AMTD 34) near 33
Weibo (WB 50) near 46.5