Lean Bullish | Cabot Weekly Review

In this week’s Stock Market Video, Cabot Growth Investor and Cabot Top Ten Trader Chief Analyst Mike Cintolo discusses his “lean bullish” stance toward the market as the evidence continues to improve, especially when it comes to growth stocks—in fact, he’s most impressed with the number of “liquid leaders” that have launched of late, usually on earnings. There are still some flies in the market’s ointment, and stock selection is key, but overall, Mike advises latching onto these leaders and enjoying the ride.

Transcript of Stock Market Video November 6, 2015

Hi, I’m Mike Cintolo, Chief Analyst of Cabot Growth Investor and Cabot Top Ten Trader and I’m here with your Cabot Weekly Review.

Well, step by step, week by week, the market stance continues to improve. We had the retest of the August lows in late September and since then the actions been obviously very, very good. We got an intermediate term buy signal in early October and even last week our longer-term trend following measures turned positive, which is all to the good. Also encouraging is the action of leading growth stocks, more and more of which have sort of emerged here on earnings as I thought could happen over the last two or three weeks, and we’ve seen sort of a settling down of the off-the-bottom commodity crowd in defensive stocks like consumer staples and utilities and REITs.

So now, we really are seeing some better action among growth stocks of real leadership, which could take the market higher. So, overall I am leaning bullish and trying to put some more money to work. That said, you do have to keep your feet on the ground here mainly because it’s a narrow advance. The number of stocks hitting new lows is a little too high for comfort. The mid-cap and small-cap indexes which I show here are lagging, and broad measures like the number of stocks below their 200-day moving average is still about 60% of all stocks so it is still a narrow rally.

At this point, that’s more descriptive than predictive. I wouldn’t not buy because of that or sell or be too nervous, but it is something I monitor. So right now stock selection is going to be in the best stocks—with sales and earnings growth, liquidity and reacted well to earnings. Look for a lower risk entry point, or at least not a high-risk entry point, and so forth. So overall, though I am leaning bullish, stock selection is the key.

Okay, let’s jump into the charts. As usual, I’m using a program called WONDA stands for William O’Neil Direct Access. For more information, please visit williamoneil.com.

So, here’s the NASDAQ. There’s not really that much new to say. The only thing I will say is we’ve had a huge run here. We’ve gone from 4,500 to almost 5,200 in a little over a month. So if, and I’m not predicting this, but if we get one of these days with the NASDAQ down 50 or 60 (1% or 1.5%) and some of your stocks are down 3% that’s going to be kind of normal. I mean, for a lot of the stocks that had such big runs, it wouldn’t surprise me if we had shake the tree moments. So you don’t get too far ahead of your skis. I wouldn’t go buy six stocks today and just stick with all of them sticking straight up in the air. There is some resistance up here you see.

Overall we’re more trend followers than super short-term investors. The intermediate-term trend is clearly positive—it’s above its 50-day, and like I said, the longer-term trend is above its 35-week moving average now. This will be the third straight week, which tells us the major up trend has resumed.

Similar picture with the S&P 500, again it’s had a big run here, not quite as strong as the NASDAQ, but still pretty good close to new highs, good pull back, so far so good.

The only other thing I want to mention with the major indexes is the small cap. You can see the Russell 2000 hasn’t even gotten above its September peak yet. It’s clearly lagging below the 200-day, way off its high. There has been a little bit of a bid here in the last couple of weeks, but this is what I mean by a narrow rally. It’s the same or really similar with the mid caps. Again, nice overall move the intermediate term trend is still up for these stocks, but nothing great—it’s still below the 200 day. There’s still a lot of resistance up here.

So it’s more of a big-cap led advance at this point. The good news from my perspective—at least from a growth perspective, is those big caps aren’t like it was three weeks ago when it was General Electric and McDonald’s and all that stuff. Now, we’re starting to see some real liquid leaders telling you that institutions are start to pile into some big, big growth ideas.

Now, here are a couple of stocks that we don’t own and I’m getting questions on. This is Google (GOOGL); here it gaps up. It looks great. Priceline (PCLN) is another one. It’s like smoke up a chimney here. Really impressive here for Priceline to new price and RP highs. These stocks don’t have terrific projected growth in my opinion or there’s a little competition there so they’re not my favorites, but that doesn’t mean I don’t like them just because I don’t know them. They look good. If you want to buy them on dips, I think that’s fine. Both of them have appeared in Cabot Top Ten Trader. I think dips on these are viable with an 8% or 10% stop. You don’t want to use super loose stops for such high-priced stocks. One thing I would say is that Priceline has earnings, I think, next week or the week after so that will cause some volatility, but both of those look good.

Some other liquid leaders that have emerged looked good. Facebook, obviously looks good and had a nice reaction to earnings. It’s not really a viable gap on earnings, but it’s good. Again, it could pull back and consolidate. At some point, it’s going to meet up with some of these moving averages during the next few weeks. I’m not saying it has to, but so far it looks great. Try to buy on dips or hold on if you own it.

Amazon might be the top big cap growth stock out there. Huge earnings estimate: five or six bucks next year, up from a buck something this year. Beat estimates, cloud business is great, so on and so forth, and the action has just been superb really, almost an accelerating uptrend here. Again, you want to try to buy on the pullbacks.

LinkedIn (LNKD) is a little bit different. So, LinkedIn had a nice gap here and on the daily chart almost a big double bottom base. So, if you’re kind of a base structure guy, say, 233 is the level for the breakout so to speak, but there is overhead here between 270 and 250 back from the spring, and the stock could hit some resistance in here, but overall I think the trend of the path of least resistance is up. It’s got all the sales and earnings metrics. It’s liquid. It’s got good story. It gapped up on earnings and it looks pretty good. I think the stock is viable here on pullbacks. You probably want to use a little bit of a loser stop down to the 220 somewhere and see how it goes.

The other one that’s a little bit abnormal, not traditional I guess I would say, is Alibaba (BABA). I like it for a couple of reasons. Obviously the story is big liquidity, good earnings growth, good earnings report, but usually we don’t buy something off the bottom like this. But with recent IPOs especially, if the liquidity and all that stuff is there, you will often see this kind of a fly, somebody calls it a fly and die pattern: a big rally and then get cut in half. It just will die for many, many months and then when the market is ready and the stock is ready and it has a good earnings report or two, the stock will get going and that’s what we’ve seen here. It’s pretty powerful here on the weekly chart. You can see it’s working on six straight-up weeks in a row, decisively above the 200-day line, a lot of good volume on the upside. Obviously, it could pull back a few points at any time, but I think all the week hands are out. I think it’s viable in this area. I’m pretty optimistic that after the crash it had, it’s ready to go.

Another name to watch is Salesforce.com (CRM). This still has earnings to come out and it has kind of consolidated in here, so you could say it’s lagging, but I don’t really go there. I think it had a nice move right as soon as the market got going. It’s consolidated in here pretty tightly. I think, again, that the path of least resistance is up. It does have earnings in a couple of weeks so if you want to start small, that’s okay, but so far so good.

What else am I looking at? PayPal (PYPL) is a newer issue not quite ready yet, but working on a nice IPO base. You could probably start a small position here, use a tight stop a little under 34 and see how it goes. Nice steady growth story.  It’s a leader. It’s a big company, with about 9 billion in sales. A lot of institutions own it including Fidelity, so we’ll see how it goes. That’s one we’re watching and I’m pretty interested in.

Monster Beverage (MNST) reported earnings Thursday night, not quite out to new highs, but nice earnings reaction and you can see this is part of a larger base here going back really to February so it’s been consolidating for quite a while. It looks like a nice decisive move here on earnings. It should be something on the watch list.  Again, you could buy a little bit up this here, and maybe buy more if it breaks out.  That’s probably how I would handle situations like this.

Regeneron (REGN), now I will just say … let me actually go with the IBB, which is the Biotech ETF basically. It’s still pretty weak, okay. This thing had a huge run over the last two and a half years. I think it’s going to take more time to consolidate this group. You can see it’s still below the 200 day. It’s kind of sagging here as it went up, but it is a good growth industry and if the sector kicks into gear, it looks like Regeneron could be sort of a new, not new leader because it’s done well too, but could be in favor here. Nice little double bottom base, still below its old highs and it’s been a little wobbly this week on earnings, but holding up fine.  If it quiets down here two or three weeks from now, biotech stocks get in gear, this could be one to watch.

And then we’re still watching things that don’t have to be super liquid or $500 per share. Okay, LendingTree (TREE). Now, my big concern with this is it’s gone up a million percent in the last couple of years and it had this kind of blow off move a couple of months ago, so my guess is it’s going to take some time meaning maybe months, maybe weeks, but it is on the watch list for a couple of reasons. One, the correction was reasonable when the market turned down. Number two, when it reported earnings a few weeks ago, not only was it a good gap but on the biggest volume ever. Number three, the fundamentals are awesome so are the numbers. And number four, it’s actually kind of consolidating in here tightly even though it announced a little share offering here—a decent side share offering actually—going forward so it still has to prove itself to me. I’d love to see the stock do nothing for a month, maybe set up, quiet down and then breakout. It’s as good story.

So we’re watching things like that as well as some things like HealthEquity (HQY). This might be too thin for my readers or at least the Cabot Growth Investor. It’s just not trading enough volume, but totally normal action. Nice up trend, correction with a market, correction here, holds the 200-day and now it’s spiking up, and now it’s tightening up too. The company has earnings coming out in December so that’s something to consider, but a small position here if it gets going on the way up is a good thing.

So, overall we wouldn’t be going peddle to the metal, fully on margin, going nuts, but there’s definitely more positive evidence than negative evidence overall, so we’ll be looking to put money to work especially in a lot of these liquid leaders hopefully on pullbacks or that look ready to emerge going forward if they haven’t reported earnings yet.

That’s all the time I have today. Thanks for listening. As always, come by again next week for another Cabot Weekly Review.

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