Reminder: This was one of our two scheduled weeks “off” for Top Ten all year (50 issues, 2 off), but we were planning on sending an update of some sort anyhow, and the market’s indigestion yesterday makes that more important. Thus, we have a few thoughts below, along with updated suggested sells and stops. We’ll be around most of today and the first half of tomorrow if you have any questions—don’t hesitate to email me at mike@cabotwealth.com.
==
2021 has been a year of chop and rotation, and yesterday was one of the bigger ones we’ve seen all year, with high-growth stocks of all stripes getting hammered while the rest of the market had a normal pullback.
From a top-down perspective, the major indexes are still in fine shape, so the overall uptrend continues. Even small- and mid-cap indexes, which have been weaker, are still holding above even their 25-day lines for now. Thus, when it comes to the broad market, the trend remains up.
Under the surface, though, things are less sanguine. First, there’s no question the number of stocks in good shape has been thinning out despite the big-cap indexes acting well—even as the Nasdaq was hitting new highs yesterday, the number of names doing the same was half of what it was when the Nasdaq first reached 16,000 in early November.
Moreover, growth stocks are under the gun, with just about all of them taking good-sized hits. There, the indexes and funds don’t look as hot—things like the ARK Innovation Fund (ARKK) has given up all of its October move, while things like the iShares Russell 2000 Growth (IWO) and Nasdaq Next Generation 100 (QQQJ) have fallen back to their 50-day lines.
Flipping through the charts, there seem to be two camps within growth right now: Many that have had huge, multi-month runs started stalling out a few weeks back and have decisively cracked short-term (and, increasingly, intermediate-term) support, plus a lot of fresher names that got going more recently that have suffered sharp, but normal, pullbacks.
At day’s end, there’s no question that yesterday was a change in character for many names. That said, a bunch that are outside of cloud, technology, networking and the like are still acting well. Thus, we’re just going with what we see: For stocks that act normally, we’re holding on (though partial profits here or there are fine), but we’re not giving losers and laggards much leeway at all. And on the buy side, it’s important to be selective (looking for stocks near support) and nimble if you’re proven wrong.
We’ll likely be lowering our Market Monitor at least another notch come next week, though obviously we’ll see what the landscape is then.
Suggested Buys
Most oil stocks dipped to their 50-day lines recently and are now bouncing. Yes, they can keel over if oil prices do, but so far, so good. Pioneer Natural Resources (PXD) looks good, with a shakeout below the line last Friday before a strong bounce so far. You could enter around here with a stop near last week’s low (174-ish).
United Rentals (URI) has gradually given ground the past two weeks while touching its 25-day line. Two options: You could start a position here with a stop near 362 (50-day line), or wait for a push above 390 or so (evidence the uptrend is resuming), and use a stop in the upper 360s.
Suggested Sells
Affirm Holdings (AFRM) – tripped stop
Bill.com (BILL)
– tripped stop
International Game Tech. (IGT)
– tripped stop
Monday.com (MNDY)
– tripped stop
Xenon Pharm (XENE)
– tripped stop
Suggested Stops
Acuity Brands (AYI) near 205
Airbnb (ABNB) near 176
Cameco (CCJ) near 24
CF Industries (CF) near 57.5
Civitas (CIVI) near 50.5
Confluent (CFLT) near 72.5
Datadog (DDOG) near 161
Dexcom (DXCM) near 550
EOG Resources (EOG) near 84
JB Hunt (JBHT) near 187
LendingClub (LC) near 35.5
LPL Financial (LPLA) near 161
Marathon Oil (MRO) near 14.8
Medpace (MEDP) near 207
Netflix (NFLX) near 630
Palo Alto Networks (PANW) near 500
Pioneer Natural Resources (PXD) near 171
Planet Fitness (PLNT) near 86
Pure Storage (PSTG) near 26.5
Snowflake (SNOW) near 333
Tandem Diabetes (TNDM) near 129
United Rentals (URI) near 362