The market had another constructive week, which by our thinking makes it three in a row. Coming into today, most indexes were up in the 1.5% to 2% range, which keeps the nascent intermediate-term green light (received last week) intact.
Of course, 2021 has been notorious for the major indexes not telling the whole story. But that’s one of the things that impresses us—this three-week rebound from the correction’s lows has been broad-based, with the on-again, off-again rotation not being seen for a while. Of course, it could always return, but even today, when Snap (SNAP) tanked on earnings and dragged down some internet peers, growth stocks overall are holding up well and the rest of the market looks fine.
Speaking of growth, that’s another item that impresses us—while this year has seen many leaders suffer at least one correction of 30% or 40% even as the Dow and S&P 500 were rallying, we’re now seeing the leaders truly flourish, with many racing higher on massive volume.
To be honest, we’re very encouraged, though a couple of things are holding us back from really going hog wild. First and foremost is earnings season—while many stocks are looking better, we all know earnings season can change that in a heartbeat, especially if some of the common worries (inflation crimping margins, supply chain issues crimping sales) pop up. You want to be sure to follow the normal plan on not diving in feet first right ahead of a company’s report.
Second, sentiment did dampen a good amount before and during the month-long correction, but it’s snapping back quickly. We don’t invest based on every wiggle from sentiment measures, but the point is another wobble in the market (possibly based on some headline bad news) is still something that wouldn’t surprise us.
For that reason, we don’t advise going nuts on the buy side, but there’s no question the evidence continues to improve. The Market Monitor will likely be at a level 7 or 8 come Monday.
Suggested Buys
It’s hard to trust commodity stocks as far as you can throw them, but we continue to think the first shakeout/pullback in energy stocks should be buyable based on their big-volume breakouts and runs higher of late. Devon Energy (DVN) remains one of, if not the, leader in the group—a dip into the 38 area would be tempting to start a position, with a loose stop in the 33 to 34 area.
We think Dexcom (DXCM) acts great, with a five-week rest around its 10-week line. The trick is that earnings are due next Thursday (October 28)—if you want to roll the dice, you could start a small position here and average up on a bullish reaction.
Suggested Sells
Chesapeake Energy (CHK) – looks OK but is lagging compared to its energy peers
ICU Medical (ICUI) – tripped stop
Macy’s (M) – booking a nice profit on activist investor-related strength
Snap Inc. (SNAP) – big crack on earnings
Suggested Stops
Antero Resources (AR) near 17
APA Corp. (APA) near 23.5
Avis Budget (CAR) near 133
Beauty Health (SKIN) near 24.5
Bill.com (BILL) near 263
Biohaven Pharm (BHVN) near 130
Brooks Automation (BRKS) near 100
Builders FirstSource (BLDR) near 53.5
Celsius Holdings (CELH) near 85
Horizon Therapeutics (HZNP) near 109
KKR & Co. (KKR) near 66
LendingClub (LC) near 29
Palo Alto Networks (PANW) near 465
Paycom Software (PAYC) near 480
Pure Storage (PSTG) near 24
Teck Resources (TECK) near 25.5