In this week’s Stock Market Video, Cabot Growth Investor and Cabot Top Ten Trader Chief Analyst Mike Cintolo discusses the intermediate-term buy signal he received last week, and how the market has handled itself well enough since then. That said, Mike believes the rubber will meet the road during the next three weeks or so—he has a growing watch list of growth stock set-ups, and if many of them lift-off, that will be the sign to become more aggressive on the buy side. (If not, Mike intends to “stay close to shore.”) Get his advice—and many of his top stock ideas—here.
Stock Market Video Transcript October 16, 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.
So, after being increasingly defensive for most of August and then very defensive for late August and all of September, we get an intermediat-term buy signal last week. Okay, so that’s our signal put a little bit of money to work, then kind of let the market pull us into more positions if things work out okay.
So far, the signal is working fine. It’s not 1999 out there, but the major indexes have held their games and the broad market is not completely healthy, thought it’s definitely not unhealthy. The number of new lows has shrunk dramatically and there’s a lot of setups out there among growth stocks, including a few that have already nosed to new high ground. Now, looking ahead I do think the rubber is probably going to meet the road especially for the growth environment, but also for the market as a whole. During the next three weeks or so we have earning season. You can always say that earning season has a big impact, but especially this time around as we’ve already had about, like I said, two or three weeks here.
Most of the action have been the off the bottom groups so energy, materials, transports, gold, commodities—and that’s fine and was sort of necessary because the broad market was in shambles. That might continue for another couple of weeks, I don’t know, but eventually these groups are probably going to hit some overhead resistance. It can be a lot of people who want to get out were stuck in these names as they fell 50, 60 or 70% in the past year so there’s going to be some resistance. They’re going to have to build their own launching pads so and so forth.
If we’re going to get a sustained uptrend in the market, we’re going to need some real leadership, which mean stocks hit new highs and continue to hit new highs going forward. Right now, the good news is that there’s a lot of setups among growth stocks and I think if they lift off on earning season, that will be your sign from the growth point of view—but even in the overall market—to kind of hit the accelerator harder, put some more money to work and buy unless they break out of the bases preferably on earnings. But so far if the pattern we’ve seen in the last couple of weeks like Netflix kind of rallies back toward old high, then reports earnings and gets hit. Chipotle Mexican Grill, just as an example, gets up to its old high this week, then gets hit for 30 or 40 points. I’m not saying these stocks are definitely broken right now, but if we keep seeing that sort of action, it’s just telling you that institutions aren’t really willing to go in there. They’re kind of nibbling around the edges as opposed to a new buying spree. So, that’s what I’ll be watching here in the next two or three weeks and that will be our clue as to what we do.
Okay, enough for me talking. Let me show you what I’m talking about. As usual, I’m using a program called WONDA stands for William O’Neil Direct Access. For more information, please visit williamoneil.com.
So first of all we’ll look at the NASDAQ. Now, I will say this: during this rally, the Dow Industrials, the transports and the S&P 500 have actually been doing a lot better than things like the NASDAQ and Small Caps. That’s not really surprising because, as I said, you’ve got the energies, the materials and the worst of the worst have been the things that have rallied in the last two or three weeks as opposed to some of the stuff that has held up well. So, we’ll see how it goes. For our system though, what we like to see in the intermediate term anyway is the index above this blue line and that blue line trending higher. This is the 25-day moving average and that’s going on for the NASDAQ and it’s going on for all the indexes, okay.
Some look a little bit better. It’s like get this to work here like the New York Composite you can see it’s well above the 25-day line. It’s trending up, okay. The small caps not as good. You can see they actually fell below before bouncing back. Mid caps are kind of somewhere in between, but they are all positive which tells us the intermediate term trend has turns up now. Now, obviously if the rally just totally falters here regardless of earning season, we got all the indexes to do this.
Okay, let’s look at the S&P 500. If we get the S&P 500 down here again, then you know all bets are off and I would just say the rally is failed or at least it’s not working and you have to back off again, but assuming we hold up here, I do think the next two or three weeks whether we get a sustain run here for three, four or five months, it’s going to come down to earning season.
Now, before I get into the setups among individual stocks, I am getting questions on gold, oil and stuff like that. It’s not really my expertise, but sure. As a very big background, these are gold stocks. Let me show you the monthly chart. The gold ETF for stocks has fallen from about 67 to 12 in the past few years. Okay, that’s a pretty good decline. It’s going on for three or four years. You can see there’s bottoming action on the daily chart—could something like gold and gold stocks have bottomed out and get better? Sure, absolutely. It just fell by 85%. It’s kind of like the homebuilders lift a few years ago. That said, you’ve had this rally here and it looks great, but there is resistance above here on the chart. Here’s the 200-day moving average. Okay, there’s resistance back here. There’s going to be a lot of people who are stuck, I mean not the gold stocks, they’re super popular, but let’s say you’re looking at oil services. There’s going to be a lot of people who we’re stuck in this stuff back when the decline started in the middle of last year, maybe they bought here thinking it was cheap and they’ve been kind of riding it out. They might be looking to sell it if the rally continues. So, that’s what I mean when I say looking for new groups that are near new highs to get going—that’s really what the market needs leadership to get going.
Now, with all that said, if you do want to play some of the stocks in these sectors, you just look for stocks that have held up better than the overall sector and really the market, and have shown some real accumulation.
So, here’s Cimarex Energy (XEC). This is not something I’m likely to buy in Cabot Growth Investor, but it did show up in Cabot Top Ten Trader. Okay, here’s the decline in January. You can see it hit the low 90s. It held up right around 100 this time around even though the sector kind of hit in the lower lows and obviously the market was too, and then it just exploded off this high and it’s pulled back really tightly. If you want to take a shot at one of these, put in a 10% stop-loss limit and see what happens. If it works, I think the upside potential is a lot more than 10%, so that the risk reward is decent, but just realize that, again, you’re dealing with some overhead here. The whole group is going to be depending on how oil prices go that sort of thing, so there’s nothing with playing these groups.
So, there’s an ETF on leading stocks something like a new field exploration and effects. Look at this one, already hitting multi-month highs. That’s pretty good. So, let’s not take a shot at this. Go for it. It’s not really my wheelhouse per se and I would just keep your expectations in check because it’s not just going to go from the worse group in the world to the best group in the world for the next six months especially after we’ve already had sort of a 20 or 25% rally in a lot of these stocks.
Now, moving on to growth stocks, all I’m seeing here really is just a lot of setups. Okay, now this looks sloppy on the chart, but honestly on the weekly chart this is Facebook (FB). It’s not super hot. It hasn’t gone up 1,000% in the last couple of years. It had a long kind of consolidation here yet it had this wild day on August 24, but you had basically just got a cup and handle here. On a closing basis, the whole consolidation, I think, from here down to here is about 18%. Another shake out here during this latest market retest in late August and now it’s back up near its high. So, if this thing blasts ahead above, say, 97 on earnings, it’s a buy. If you want to buy a little bit ahead of time that’s fine—it’s up to you, but this is one to watch.
Amazon.com (AMZN)
has actually pushed out to a new closing high and looks good. It’s got earnings in a couple of weeks. Salesforce.com (CRM) is another one that’s acting well. You can see 200-day support, 200-day support, 200-day support and then kind of smoke up the chimney here. There’s just no real selling here. For the most part, it’s acting very well.
So, if you’re interested you can nibble these stocks. When I say nibble, I mean half position, two-thirds your position, whatever, and then see what happens on earnings or just watch them and see how they do on earnings and have your levels out there. For Salesforce, I do think it’s viable around here for Amazon same thing. Okay, I’m not opposed to buying Facebook either, but what you’re really looking forward is sort of consolidation onset, reports earnings and boom it’s at 102 and on its way to 120—that sort of thing. That’s what we’ll be watching for.
Other names and a lot of these I’ve mentioned before, but that’s a good thing. We actually saw a lot of stocks hold up and they’re still holding up, so that’s pretty good. Restoration Hardware (RH), I’ve shown this weekly chart before. It has kind of a million bases. It’s got a base in here. It really hasn’t had any huge runs, which could be viewed as a negative, but it’s held up well in the last couple of months here. Decline, up, decline, back up. I would just say, above 103 bucks or so going forward because it doesn’t have earnings until December so I would just take it as it is. If it really blows out of here and the market is acting well, you could probably take a position.
Okay, ServiceNow (NOW) is kind of a small. It’s probably a bit smaller than Salesforce, but I would just say a level here 81 or 82 bucks. You can see it’s just kind of gone straight sideways here for a few months. You’re looking for earnings, see if you get a breakout—something like that would be worth considering.
How about on Palo Alto Networks (PANW)? Now this was a big winner. It has had a big run so you’re not in the first or second ending here, but the correction so far is reasonable about 30% from high to low and really less not on a closing basis, and now it’s almost building a little bit of a shallower consolidation here. If you’re aggressive, I think you could nibble in the high 170s to around 180. If you just want to wait for sort of an all-clear, you just want to see the stock above 190 or 200—that’s fine too, but overall I think my main point is despite this huge run, this is definitely the leader in the site for security market which I think has some good growth going forward and now this consolidation so far is normal. It’s not climactic. It’s not all over the place. It’s not wide blues. So, it looks normal. Now, you’re just waiting for confirmation like with a lot of stocks to see if it can break out on the upside.
One that has already gone out here is Nvidia (NVDA). This is not a new name, but in terms of leadership, it’s new. It hasn’t been doing much for a couple of years. Nice breakout and follow through. This is a name that maybe you could try to buy on a pullback and use 10% loss limit and see what happens.
Salesforce, I already mentioned, Under Armour (UA) is a little sloppy this week along with a lot of retail stocks since the Wal-Mart news, but overall, you can see it’s only had a couple of bad days in the last few months up here and then the market crashes so it comes down. It immediately snaps back and actually hits new highs. Then what happens in late September, it holds up, it holds up, it has two bad days and immediately starts to rally back. It’s not the strongest thing. It does have earning soon, but you’re kind of looking for a push above 105, not the freshest story, but a great long-term secular growth story.
And then here’s some of the things you also want to keep an eye on and not just ones that are at highs, but things that could kind of start rounding out.
So, here’s Mobileye (MBLY). I love the story. I know the short guys are taking the ax at it, but Fidelity I think own a ton of these things so I assume they’ve been doing their research. It’s not a fraud or anything. It’s a real company. They’re doing great. It had this little run breakout. The market capped out so it got hit pretty hard plus the short attacks and all that stuff. So far, though, again the correction is steep, but not unreasonable. It’s kind of holding around the 200-day line, hit the bottom around 44 bucks a couple of times, now it’s tightening up. If you’re really aggressive, maybe above 52, but again they have earnings in another probably two or three weeks and we’ll see what happens. Just keep an eye on it maybe if you could start seeing some better and better action, you could nibble on it if it builds the right side of its base.
And another name to watch that actually popped up on our watch list this week is PayPal (PYPL). The chart is nothing special right here, but not unusual. It comes public. The market is near high in this case PayPal was spun off from eBay, but basically it comes public, it gets hit and the market crash, retests it’s low and now it’s starting to ramp up again. I don’t really have a buy point. I guess 36 bucks if you’re aggressive for a small position, but really for us we’re just kind of watching it. We’d like to see it report earnings kind of had a little bit of a coming out party and see if this could be kind of following the footsteps of the Visa or MasterCard in terms of being a payments leader for the next generation of digital payment.
So, overall my message is respect the evidence. If you haven’t done a lot of buying or any buying, do a little buying if you have a lot of cash. The market is looking better. Some stocks are looking better. Things are working. Do a little buying.
You don’t want to argue with the market, number one. Number two and probably more important, have your watch list ready of stocks you want to buy, preferably as they lift off to new highs—if they liftoff to new highs—here on earning season. I think we’ll get our answer about the rally and about the growth side of the market during the next three weeks during earning season.
Okay, that’s all the time I have for today. As always, thanks for listening and come back again next week for another Cabot Weekly Review.