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The market and especially leading growth stocks were trounced today. In response, we’re selling half our shares in two stocks.

We have a few portfolio stocks that warrant attention this week, amid an ongoing sector rotation. Money is flowing out of overvalued tech stocks into quite a variety of undervalued industries.

What a difference a few weeks make! In late June the market was on its knees as fears of Fed tapering took hold. Today, though, those fears have given way to optimism, with all major indexes and hundreds of stocks surging to new highs. Yes, earnings season is getting underway, which always adds risk to the equation; we’re sure we’ll see a few potholes in the weeks ahead as some firms miss estimates. But the evidence has turned clearly bullish, and the path of least resistance is up. Thus, you should be working to get heavily invested in some of the strongest stocks in the market.

This week’s list has many familiar faces, as well as a broad representation among sectors. Our favorite of the week is Santarus (SNTS), which has enjoyed a huge run in recent months, but sales and earnings growth are huge, and the stock has exploded higher on big volume. Pullbacks are possible, but higher prices are likely over time.

Stock Name	Price	Buy Range	Loss Limit
YY Inc. (YY)	0.00	33-35	28-29
Yelp (YELP)	41.30	36-38	32-33
The ExOne Company (XONE)	0.00	60-62	53-54
Tesla, Inc. (TSLA)	818.87	120-130	100-108
Santarus (SNTS)	0.00	24-25	20-21
Nexstar Media Group (NXST)	105.68	37-39	30-31
Krispy Kreme Doughnuts (KKD)	0.00	19-20	16-17
Delphi Automotive (DLPH)	0.00	52-54	50-51
Conn’s Inc. (CONN)	0.00	55-57.5	49-50
Bloomin’ Brands (BLMN)	0.00	24.5-25.5	22.5-23

One stock reports fourth-quarter results, another moves from Hold to Buy and we reiterate the Buy recommendation on a third.

One of our stocks reported a solid quarter this week that prompted a fresh wave of buying and drove the stock up over 10% yesterday.

Current Market Outlook


After a nice five-week recovery rally that saw the S&P 500 recoup 63% of its crash (the Nasdaq got 72% back), some sort of retreat wasn’t uncalled for, and that began last week. How this pullback unfolds will be key: If the intermediate-term uptrend cracks (would likely take another 3% down in some indexes) and many leaders do the same, it will be a sign to back off and/or tighten stops, but to this point, the retreat has been normal for both the major indexes and individual stocks. Thus, we’re obviously watching closely, but we have no change in our stance right here, thinking the path of least resistance remains generally up, but potholes and news-driven moves (especially on earnings) are likely given the recent run-up and the overhead resistance from February. It’s fine to do some buying, but don’t go wild until the buyers really flex their muscles. We’re keeping our Market Monitor at a level 6.

This week’s list has a bunch of intriguing stories, though a few have earnings coming up soon. Our Top Pick is Bandwidth (BAND), a lesser-known outfit whose offering is key to many fast-growing companies.

Stock Name	Price	Buy Range	Loss Limit
Bandwidth Inc. (BAND)	129.19	90-94	78-80
Bill.com Holdings (BILL)	88.76	52.5-55.5	46-48
Coupa Software (COUP)	262.20	172-178	153-156
Datadog (DDOG)	81.52	43-45	38-39.5
Dexcom (DXCM)	421.36	335-350	293-303
DraftKings Inc. (DKNG)	38.26	19.5-21.5	16-17.5
Halozyme Therapeutics (HALO)	24.82	22.5-24	19-20
Lattice Semi (LSCC)	23.92	20-21.5	18-19
Seattle Genetics (SGEN)	150.85	145-155	125-130
West Pharmaceutical (WST)	210.25	182-189	165-168

Current Market Outlook


Up is good, so last week’s rebound in growth and continued push higher in the broad market was encouraging. That said, nothing much has changed with the overall evidence—many areas of the market look just fine, with a few indexes actually hitting all-time highs, but growth stocks are still (mostly) in a corrective mode, with a bunch of names having rallied only into resistance. Really, we think the action of the next week or two will tell the tale—resilience and upside from here would suggest the huge pullback earlier this month was more of a shakeout, but renewed selling pressure would hint toward another leg down. Right now, we’re playing things halfway—we’re OK with some buying, especially in stronger names that pull back some, but we’re not pushing the envelope and need to see more from growth before concluding the storm has passed. We’re leaving our Market Monitor at a level 5 today.

This week’s list is very much a mixed bag, with cyclicals, retail, growth and turnarounds all making the cut. Our Top Pick is Thor Industries (THO), which looks like the leader of a fresh move for that group. You could nibble here or (preferably) on dips.

Stock Name	Price	Buy Range	Loss Limit
Big Lots (BIG)	71	66-69	59-61
Devon Energy (DVN)	25	22-23.5	19-20
Dropbox (DBX)	28	26.5-28	24-25
Dycom Industries (DY)	100	95-98	85-87
Groupon Inc. (GRPN)	60	57-60	48-50
Inari Medical (NARI)	114	110.5-115.5	98-101
Macy’s, Inc. (M)	21	18-19.5	15.5-16.5
Owens & Minor (OMI)	37	33.5-35.5	30-31
Summit Materials (SUM)	30	28-30	25-26
Thor Industries (THO)	147	140-147	125-128

Current Market Outlook


Today’s market dip pulled all the major indexes we track below their 50-day lines, which officially puts the kibosh on the intermediate-term uptrend. Since we pulled in our horns weeks ago, we’re not changing our stance much: We remain cautious, with the indexes having issues and rotation coming fast and furiously among individual stocks. That said, we’re not sticking our head in the sand, either, as we’re seeing a decent number of issues either show signs of bottoming out (some of the virus winners are finally finding support) or holding firm despite the market’s wobbles. We continue to advise taking it slow and holding some cash given the overall environment, but select nibbling is OK, preferably on dips and shakeouts.

This week’s list has many names acting well, though their day-to-day action remains volatile. Our Top Pick is Seattle Genetics (SGEN), which looks like it’s starting to emerge from a two-month correction; we think you can start small here or on dips.

Stock Name	Price	Buy Range	Loss Limit
AGCO Corporation (AGCO)	70.77	68.5-71.5	63-65
Brinker International, Inc. (EAT)	44.58	42-44.5	36.5-37.5
Exelixis (EXEL)	25.80	24.5-26	22-23
Kingsoft Cloud Holdings (KC)	36.80	35-37	32-33
NIO Limited (NIO)	18.80	17-18	15-15.5
Norfolk Southern (NSC)	214.26	204-208	191-193
Pinterest (PINS)	36.85	35-37	31-32
Seattle Genetics (SGEN)	178.88	175-180	158-161
Toll Brothers Inc. (TOL)	47.02	44.5-47	40-41.5
TopBuild (BLD)	157.72	149-154	136-139

There were a few pre-election wobbles in the market, but last week’s action looks decisive, with many major indexes that had been capped below their summertime peaks bursting to new highs, while leading stocks went bananas, including many out-of-this-world moves on earnings. Now, to be fair, we’re still seeing some earnings duds, and the action is very hot and heavy, which raises the risk of some sort of near-term rug pull. Thus, it’s important to keep your feet on the ground—but overall, there’s no question the evidence is bullish and the buyers are control. We’re moving our Market Monitor back to a level 8 and could go higher if the buying pressures remain intense.

This week’s list is has something for everyone, with a couple of cyclical names sprinkled in among a batch of strong growth titles. Our Top Pick is showing great growth and just staged a solid breakout from a very tight area last week.

You may have noticed us talking about a special issue of Dick Davis Digest that will contain the top stock picks for. Today, I have an interview with the editor of the publication, Chloe Lutts.

A recent survey by the American Association of Individual Investors (AAII) showed that the percentage of investors who think stocks will rise over the next six months plunged to its lowest level in more than a year.

In 1931, Humphrey Neill, who later became famous as the Vermont Ruminator, wrote a book called “Tape Reading and Market Tactics - The Three Steps to Successful Stock Trading.” What are the Mr. Neill’s three steps to successful stock trading? The first step is familiarizing yourself with the methods of the institutions that move the market. The second step is learning how to interpret the actions of both these groups and the investing public. The third step (and hardest of all) is achieving mastery of yourself; of the “temperament, emotions, and the other variables that go to make up human nature.”

In the short-term, we remain in the midst of a contraction of liquidity, as the reverberations from the collapse of the sub-prime credit markets continue. Eventually, these markets will stabilize, and when the smoke clears we’ll see a market that is smaller, cleaner and saner ... and liquidity will return. How long this will take I have no idea.

Guest Editor Carla Pasternak discusses the four crucial criteria to finding safe dividends.

Yesterday was the worst day of the year for cannabis stocks, with HEXO (no longer in our portfolio) leading the way down with a plunge of 22.5% after the company announced that revenue for the fiscal fourth quarter, ended July, would be $14.5 to $16.5 million, well short of analysts’ expectations of $24.8 million.

There has been no big picture change in the market over the last week. As expected, everyone is following earnings reports and trying to make broad assumptions based on what individual companies are reporting.

With a 29% average annual rate of return over 13 years at Fidelity, Peter Lynch certainly earned his status as a legendary investor.

Recently, Lynch revealed that indexes like the S&P 500 and Nasdaq have been propped up by a handful of high-flying tech stocks. “The truth is, we’ve been in a stealth bear market for a long while now if you don’t count those 10 or so darling mega-caps,” Lynch remarked with his trademark sarcasm.

That may soon be coming to an end.

I like looking at microcars, but I don’t want to buy them. I’m sticking with stocks as there are some great bargains out there.