The market took a step back this week, as Tuesday’s big selloff dropped the Nasdaq and small-cap indexes below their 50-day lines, and pushed other indexes further away from their 50-day lines. In the process, many stocks (including Top Ten stocks) broke support and remain below that support today.
That action isn’t the end of the world. Overall, though, the intermediate-term trend is neutral-to-down at this point. We’re likely to bump our Market Monitor down to a level 6 (out of 10) reading on Monday.In the near-term, we probably need to see most major indexes rally 2.5% to 3% from here to flip the trend back up. And what we really want to see to break out of this choppy phase is new highs—above 2,200 on the S&P and 5,350 on the Nasdaq—to signal that the bulls are really back in control.
If and when that happens is anyone’s guess, but we remain optimistic that the next big move is up. Part of that optimism is because the major indexes remain above their long-term moving averages, part is because the broad market remains healthy, and part is negative sentiment—every time the market has a bad couple of days, the bears come out of the woodwork and claim “the end” is near.You should practice a little caution here, and take things on a stock-by-stock basis. Most of the weakness we’ve seen has come from stocks that (a) haven’t had any meaningful correction in four-plus months and (b) are beginning to crack on heavy volume. That seems to be the main area of weakness in the current environment.
But there remains a good number of stocks that are acting well, including a bunch that dipped to key support this week, held firm, and have bounced since. So you should continue to give your relatively resilient performers some rope.
Topping it all off is earnings season, which is just getting underway. Remember to have plans for your stocks heading into earnings, and to keep new positions small if the company you’re buying is set to report in just a few days.
Buy Ideas
Abiomed (ABMD 128) continues to act well, along with a handful of medical device names. If you’re not in, you could buy a little here with a stop around 120. But keep new positions small because of the market and because earnings are due out in two weeks (October 27).
Adobe Systems (ADBE 108)
continues to act very well, holding its earnings gap from mid-September. With earnings out of the way, the stock looks buyable around here with a stop near 101.
Eagle Pharmaceuticals (EGRX 63)
has dipped with the market in recent days but found some support near its 50-day line. If you don’t own any, you can consider buying some around here with a tight stop just below 60.
Las Vegas Sands (LVS 57) is still early-stage, as it just broke out at the start of September, and the recent pullback to its 25-day line looks normal. We do think some further retrenchment is possible, but a buy near 57 with a stop around 54 makes for a decent risk-reward opportunity. As usual, we advise a small position with earnings likely out in early November.
Match.com (MTCH 18)
looks great, actually poking out to new highs this morning. If you want to nibble, the 17 to 18 area is logical, with a stop around 16.
Nevro (NVRO 100)
has actually shown decent accumulation off its 50-day line, though the stock hasn’t made a ton of progress for a couple of months. Still, that might be a good thing (wearing out some weak hands). We’re OK with a small buy here and a stop near 93.
Wix.com (WIX 44) suffered some distribution in mid-September, but has tightened up nicely since then. It’s not the perfect set-up, but we’re intrigued—we’re OK with a small buy here and a stop near 40.
Sell Ideas
Many stocks tripped their stops and have been sold. Burlington Stores (BURL 77), Electronic Arts (EA 83), Microchip Technology (MCHP 59), Proofpoint (PFPT 70), TransDigm (TDG 278), Wynn Resorts (WYNN 92) and Zendesk (ZEN 28) are all rated Sell.
Some other stocks melted down for various reasons—MercadoLibre (MELI 168), Microsemi (MSCC 38), Ubiquiti Networks (UBNT 50) and Veeva Systems (VEEV 38) decisively cracked their uptrends and should be dumped. As always, you could sell some shares here and try to sell the rest on a bounce if you want, but either way, the stocks likely need time to repair the damage.
Twilio (TWLO 47) never rallied into the buy range we set in Monday’s issue, so no new buying should have been done. And since the stock tripped the tight loss limit we set, the stock is now a sell—it needs time to re-set itself in the weeks and months ahead.
We also think partial profits make sense for stocks like Finisar (FNSR 29), Lumentum (LITE 41), Symantec (SYMC 24) and U.S. Silica (SLCA 48), all of which have had big runs before this week.
SUGGESTED STOPS
Applied Materials (AMAT 28) near 27
Arista Networks (ANET 81) near 78.5
Cirrus Logic (CRUS 53) near 48.5
Copa Holdings (CPA 89) near 80.5
Eagle Pharmaceuticals (EGRX 63) near 59.5
Etsy (ETSY 15) near 13.5
Gigamon (GIMO 50) near 48.5
Green Plains Energy (GPRE 27) near 23.5
Ingevity (NGVT 43) near 41.5
Inphi (IPHI 39) near 38.5
Line Corp. (LN 45) near 44
Lumentum (LITE 41) near 37
Masimo (MASI 59) near 56.5
NetApp (NTAP 34) near 32
NetEase (NTES 264) near 225
NuVasive (NUVA 66) near 63.5
Nvidia (NVDA 66) near 61.5
Parsley Energy (PE 36) near 32.5
PDC Energy (PDCE 64) near 62
Penske Auto (PAG 45) near 43.5
Penumbra (PEN 72) near 69.5
Rice Energy (RICE 26) near 24.5
Seattle Genetics (SGEN 51) near 50.5
Shopify (SHOP 43) near 40
Tata Motors (TTM 41) near 38.5
Thor Industries (THO 83) near 79.5
Trex (TREX 59) near 56.5
Urban Outfitters (URBN 35) near 33.5
XPO Logistics (XPO 35) near 33.5
Wix.com (WIX 44) near 40
Yelp (YELP 37) near 36