A week ago, it appeared the market was ready to break free from its three-week correction and consolidation (as well as its two-month period of sideways trading). But the sellers have again showed up, spurred on by worries about the solvency of Deutsche Bank and bad memories of the financial crisis eight years ago.
While the recent selling is disappointing, not much has changed with the overall evidence. The intermediate-term trend is effectively neutral, with most indexes relatively unchanged since mid-July. Until that changes, stocks will be subject to some potholes, so it’s best not to floor the accelerator.
In the short-term, we don’t have a strong opinion on the market’s next move. A rally from here in the wake of the Deutsche Bank fears wouldn’t surprise us, but neither would further dips and choppy action, as uncertainties keep the buying in check. It’s a 50-50 type of thing.
That said, looking out, we don’t see any evidence that the market is forming a long-lasting top--the Nasdaq continues to outperform (usually a good sign for the market), the broad market is healthy, the long-term trend is up and many growth stocks look like they want to head higher if the market does.
Overall, we think our current stance (level 7 out of 10 on the Market Monitor) makes sense for now--certainly leaning bullish, but also holding some cash until the market enters a decisive upmove.
You should continue to hold your strong, profitable stocks; few leaders have cracked in recent weeks, which is encouraging. But on the buy side, you probably want to try to pinpoint entry points more carefully, waiting for pullbacks or a week or two of tight action before entering.
Buy Ideas
Applied Materials (AMAT 30) has been choppy along with the market in recent weeks, but we like some of the stock’s recent positive volume clues and the fact that it’s just above its 50-day line. It’s buyable here with a tight stop near 28, so your risk is low should the market pull the stock lower.
Green Plains Renewable Energy (GPRE 26)
traded tightly near 25 for most of September but just leapt to new highs on good volume as some energy stocks have popped. If you don’t own any, you could buy some around here with a stop just under 24.
Line Corp. (LN 49) is wild and woolly, but it continues to act well--shares formed a base between 41 and 47 over the past month, and in recent days, zoomed to new highs on a pickup in volume. The straight-up move led to a minor dip in recent days, but we’re OK with a nibble here and a loose stop just below 44.
Microsemi (MSCC 42)
is choppy on a day-to-day basis, but similar to AMAT, we like the stock’s recent volume patterns. You can buy some around here with a stop near 39, making for a solid risk-reward opportunity.
We unfortunately got shaken out of a couple of energy stocks this week (see the Sell section below), but the ones we’ve held on to look like their correction is over. Parsley Energy (PE 33) dipped below its 50-day line for few days but has ramped back into the middle of its range. We think you could buy a half-sized position here with a stop near 30, with the idea of buying more if the stock gets above 35 (and the market turns healthy).
Sell Ideas
We have nine sells this week. Three of them, Callon Petroleum (CPE 15), Pioneer Natural Resources (PXD 185) andSilicon Motion (SIMO 52) were stop nicks--the stocks came down for a day, nicked the stop and have since ramped higher. If you sold them, hold the cash and look for another name to enter. But if you happen to still own them, you can hold on for now, as all three have shown decent upside power.
The six remaining sells are: Dexcom (DXCM 87), Exact Sciences (EXAS 18), Insulet (PODD 41), Jack in the Box (JACK 95), Tempur Sealy (TPX 55) and Wingstop (WING 29).
SUGGESTED STOPS
Acacia Communications (ACIA 106) near 98
Align Technologies (ALGN 94) near 90
Berry Plastics (BERY 44) near 43
Burlington Stores (BURL 80) near 78
Cirrus Logic (CRUS 53) near 48
Communications Sales & Leasing (CSAL 32) near 29.5
Copa Holdings (CPA 87) near 79
Electronic Arts (EA 85) near 81
Green Plains Energy (GPRE 26) near 23.5
LGI Homes (LGIH 37) near 35
Line Corp. (LN 49) near 43.5
Masimo (MASI 59) near 56
Microchip Tech. (MCHP 62) near 59
NetEase (NTES 241) near 218
NuVasive (NUVA 66) near 63.5
Nvidia (NVDA 69) near 61
Parsley Energy (PE 33) near 30.5
Penumbra (PEN 75) near 69.5
Proofpoint (PFPT 74) near 72
Rice Energy (RICE 25) near 23.5
Tata Motors (TTM 40) near 38.5
Thor Industries (THO 85) near 79
TransDigm (TDG 288) near 279.5
Trex (TREX 59) near 56.5
Twilio (TWLO 69) near 53
Urban Outfitters (URBN 34) near 33.5
XPO Logistics (XPO 36) near 33
Wix.com (WIX 44) near 39.5
Wynn Resorts (WYNN 98) near 94
Zendesk (ZEN 30) near 29