Last week, while the major indexes had another solid week, we did see some wobbles among individual stocks—nothing abnormal, but a possible sign that sellers were finally showing up after a heady run. And this week, those pressures broadened somewhat, with most indexes coming into Friday down 0.5% to 1.6%, and many hot stocks hitting a pothole on Tuesday and (especially) Wednesday.
We continue to think that, in the big picture, the action so far is normal. First off, just going with what is in front of us, the market’s intermediate-term trend remains in fine shape, and second, while many hot stocks have let some air out of their balloon, few (if any) have really broken down. Plus, the fact that we have seen so many big breakouts from multi-month launching pads bodes well—sure, it’s possible most of these breakouts fail, but the odds don’t favor that.
Moreover, anecdotally, short and scary dips in a bull market aren’t unusual at all, and so far, that’s all we’ve seen here. Thus, overall, we remain bullish and think higher prices are in the offing.
That said, near term, there’s no doubt that (a) many stocks and indexes have had huge runs, and (b) sentiment has quickly gotten a bit out of hand again. We’re not foolish enough to predict the next few days, but we’ll just say some further reverberations and tricky action (selling, rotation, news-based moves) wouldn’t shock us.
Overall, we’re actually going to leave our Market Monitor at a level 8. However, we do think it’s important to manage your stocks—those that have had extended, multi-month runs without much of a correction could be vulnerable to more selling, and you always want to watch loss limits, too—while, on the buy side, we’d favor aiming for fresh names that have shown a ton of buying volume in recent weeks, ideally entering on dips.
Long story short, we’re bullish, but further near-term potholes aren’t out of the question to bring sentiment down and set the stage for the next run.
Suggested Buys
CF Industries (CF) had a great, persistent move to new highs in September, pulled back in October and has shot ahead again in recent days as earnings estimates (up to $7.87 for next year, up 74% from this year) continue to rally. We probably wouldn’t chase it here, but dips back to the 62 area (with a stop near 57.5) would be very tempting.
LendingClub (LC) gapped up huge on earnings in late October, got as high as 49 and pulled back to 41 or so during the worst of Wednesday’s selloff. As with CF, further dips (back to 41 or so) would be buyable, with a stop in the 25.5 area.
Teck Resources (TECK) moved to decisive new highs in the first half of October before pulling back in a controlled fashion to its 50-day line on Wednesday. Yesterday’s huge-volume rally off the line looks buyable, with a tight-ish stop near 26.5.
Suggested Sells
If you bought Tesla (TSLA) with us and enjoyed the moonshot, we’d probably let some shares go after the recent heavy selling. Yes, there was a reason (Musk’s insider selling) and overall, it’s OK, but we’d prefer to take a few shares off and let the rest run.
Arch Coal (ARCH) – cracked 50-day line and generally acting sloppy since earnings
Beauty Health (SKIN) – tripped stop
Live Nation (LYV) – taking a profit/some heavy-volume selling after the earnings pop
MGM Resorts (MGM) – tripped stop
Paycom Software (PAYC) – tripped stop
Suggested Stops
Affirm Holdings (AFRM) near 130
Antero Resources (AR) near 18.5
Bill.com (BILL) near 299
Cameco (CCJ) near 24
Celsius Holdings (CELH) near 93
CF Industries (CF) near 57.5
ConocoPhillips (COP) near 68
Dexcom (DXCM) near 540
Hilton (HLT) near 137.5
International Game Tech. (IGT) near 28
KKR & Co. (KKR) near 71.5
LendingClub (LC) near 35.5
LPL Financial (LPLA) near 161
Monday.com (MNDY) near 345
Palo Alto Networks (PANW) near 480
Pure Storage (PSTG) near 26.5
Range Resources (RRC) near 21.5
Tandem Diabetes (TNDM) near 125
Teck Resources (TECK) near 26.5
Xenon Pharm (XENE) near 28