The major indexes are relatively flat this week as the market continues its tight, choppy trading range that’s been in place since early September. Because of that, our stance remains unchanged—our Market Monitor is at a level 6 out of 10, and we advise holding resilient stocks but also holding some cash, while being selective when doing new buying.
Our mixed stance is based on the market’s mixed evidence. For the bears, the intermediate-term trend remains sideways-to-down, many secondary growth stocks have cracked their 50-day lines in recent weeks (especially those that hadn’t had any meaningful pullback during the past four-plus months) and, most of all, very little money has been made during the past two months.That said, on the bullish side, the longer-term trend is still up, and the broad market remains healthy. That’s important because, near major tops, you almost always see major degradation in the broad market by this point in a consolidation.
Moreover, we are seeing most liquid growth stocks hold key support, and even some “new” liquid growth stocks emerge on earnings. Whether or not these are simply the last stocks to hold up before the sellers get to them, time will tell. But so far, it’s encouraging.All told, we think a cash position in the 30% to 50% range (depending how you run your Top Ten portfolio) makes sense here. We do think holding resilient stocks makes sense, and a little buying (possibly in new leaders that emerge during earnings season) is fine, too.
But you shouldn’t push the envelope here given the lack of upside we’re seeing, especially with earnings reports for most stocks coming during the next three weeks. The onus remains on the bulls to kick this market out of its funk and re-establish an intermediate-term uptrend.
BUY IDEAS
Adobe Systems (ADBE 108) is one of many liquid leading growth stocks that’s holding its own—the stock is testing its 25-day line today, but has basically moved sideways since its earnings gap in mid-September. You could nibble here with a stop near 104, or just wait for a powerful push above 110 and a healthier market.
Copa Holdings (CPA 94) isn’t a well-known name, but airline stocks and emerging market stocks are both acting relatively well. CPA has pushed to new highs this week on modest volume—a small buy on dips to 92 would be tempting, with a tight stop near 85.
We remain very impressed with GrubHub’s (GRUB 43) action. After tagging its 50-day line, shares jumped on big volume for a few days (it’s working on its tenth up day out of 11), and even Facebook’s partial move into online food ordering hasn’t dented the stock. Earnings are due out next Wednesday, but we’re not opposed to a nibble here or just wait to see the earnings reaction.
Match.com (MTCH 19) looks great, having accelerated to new highs on great volume this week. (It’s original base breakout came in mid-September.) Nibbling on a dip to 18.5 is an idea, or just watch it, as earnings are due out November 2.
Parsley Energy (PE 36) has enjoyed four big-volume up days this month as shares have pushed to new highs, and now the stock has cooled off for a few days. Earnings are due out November 3, which is a risk, but we do like the set-up here. You can nibble here or on dips of a point or so with a stop near 33.
SELL IDEAS
We had another batch of stocks trip their stops this week. Inphi (IPHI 39), Line Corp. (LN 44), Penske Auto (PAG 44), Trex (TREX 56), Urban Outfitters (URBN 34), XPO Logistics (XPO 35) and Yelp (YELP 34) are all sells after violating support. As always, if you want to give any stock a bit more rope, that’s fine, but don’t let a bad situation get much worse.
SUGGESTED STOPS
Applied Materials (AMAT 28) near 27
Arista Networks (ANET 82) near 78.5
Cirrus Logic (CRUS 54) near 49
Copa Holdings (CPA 94) near 82
Eagle Pharmaceuticals (EGRX 66) near 60
Etsy (ETSY 14) near 13.5
Gigamon (GIMO 50) near 48.5
Green Plains Energy (GPRE 26) near 24.5
Ingevity (NGVT 42) near 41.5
Lumentum (LITE 41) near 37.5
Masimo (MASI 59) near 57
Micron Technology (MU 17) near 16
NetApp (NTAP 34) near 32
NetEase (NTES 264) near 227
NuVasive (NUVA 67) near 63.5
Nvidia (NVDA 67) near 61.5
Parsley Energy (PE 36) near 33
PDC Energy (PDCE 64) near 62
Penumbra (PEN 74) near 70
Rice Energy (RICE 25) near 24.5
Shopify (SHOP 43) near 40
Tata Motors (TTM 40) near 38.5
Tech Data (TECD 79) near 77.5
Thor Industries (THO 82) near 79.5
Weibo (WB 51) near 46.5
Wix.com (WIX 45) near 40.5
Zeltiq Aesthetics (ZLTQ 38) near 37