In this week’s Stock Market Video, Cabot Growth Investor and Cabot Top Ten Trader Chief Analyst Mike Cintolo talks about the strengthening market. From a top-down perspective, there’s little to complain about, as the major indexes have acted very well following the early-October buy signal. Individual stocks, however, have been very tricky—defensive stocks are being bought while many potential leading stocks continue to meander. Friday brought some breakouts, though, and Mike presents his list of set-ups should more leaders begin to lift off.
Transcript of Stock Market Video October 23, 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.
From a top down perspective, we’re going more and more constructive on the overall market—really since our intermediate indicator turned positive on October 7, I believe, we’ve seen a lot of good action on the upside, pullbacks have been contained to just one or two days before index recovered and hit higher highs. We’re even sort of attacking the 200-day moving averages in some cases and some indexes so we could even see the longer-term trend turned back to positive within a week or two. We’ll see how that goes, but either way, from a top down perspective, there’s no question. You can’t really throw stones at the rally. Now, underneath the surface it’s wild. I mean, we’re literally seeing some biotech stocks for instance just melt down on accusations, we’re seeing some defensive stocks go up every day and we’re seeing a lot of stocks sort of still chop around. So, we would just ignore the noise and stick with the game plan, and our game plan has been when we turn positive, we put some money back to work and we are off to a decent start. We’re not printing money or anything, but making a decent start in terns of making money, and I think what we’re still waiting for is a lot of these growth stocks to set up and break out.
Now, I’m recording this on Friday. Before today, we’d actually seen more weakness from relatively strong stocks than strength and breakouts. Okay, we saw things like Netflix following earnings, Chipotle Mexican Grill broke down, Under Armour broke down. Even today, something like a Fortinet is having a bad morning. Pandora is melting down, but we are now today starting to see some of the bigger names like an Amazon, like Google, and like Facebook lift to new highs on pretty good volume. The first two of those stocks were on earnings. So, hopefully that changes, and if we see more and more breakouts, by all means take the trades, put in your loss limit and see how it goes. I’ll give you a bunch of candidates here that are still setting up and that could break out in the next week or two if all goes well, but overall let’s say we’re still sort of in the cautiously optimistic camp. Some buying is okay, but still hold some cash too and don’t really floor the accelerator until we get some more confirmation from individual stocks.
Okay, that’s enough for me. Let’s get into the charts. As usual, I’m using a program called WONDA, which stands for William O’Neil Direct Access. For more information, please visit williamoneil.com.
Now, I’m going to start here. This is actually the Biotech Index IBD and I’m just going to show you some of the sectors first just to show you what’s going on. I mean, this is extremely weak. It can’t even get off his knees. Obviously, in the downtrend, but has barely bounced, hasn’t been able to get above this blue line which is a 25-day moving average and who knows this maybe this is a bottom and the biotech stocks come back to life and the market broadens up. I would love to see that, but just taking the evidence as it is, this thing can’t even get out of its own way and this isn’t just Valeant Pharmaceuticals and Allergen, but this is Celgene, Gilead, Biogen, all these names and Amgen. They haven’t been able to bounce it all.
Conversely, you have defensive stocks. This is the Consumer Staples ripping ahead to new highs. Okay, now this isn’t my favorite thing to see: the first thing out to new highs is Coca-Cola and Johnson & Johnson and those types of stocks.
But there are other things in the growth area that are doing okay too. Now, here are the chip stocks, they were killed, I mean they got a huge decline after really a topping out process for a few months. We can see a higher low during the market’s retest and really sort of smoke up a chimney here. In fact, they’re back above the 200-day moving average.
Now, these things could easily pull back here. It’s had quite a bit run here in the last month, but overall we’re seeing just under the surface is what we’re saying. It’s all sorts of different things, even oil stocks—they had a huge rally. I’ll show you a huge rally off the bottom. This doesn’t look huge, but percentage wise it is, and now they’ve been pulling back and lagging for a couple of weeks. We’ll see how it goes. It actually looks like a pretty viable pullback in the short term. I’m not huge on energy stocks in general because they’re still in a longer-term downtrend, but my point is that day-to-day, week-to-week, there’s a lot of rotation and a lot of crosscurrents. You throw earning season in the mix and okay.
Now, from a growth perspective, though let’s go back to the major indexes. We have seen more strength among the non-growth indexes, but even things like the NASDAQ are starting to kick into gear, okay. Again, you had sort of the double bottom here and we turned positive. The NASDAQ was one of the last to turn positive, but as this 25-day turned up around here, we got a buy signal from some of the other indexes. You can see it’s pull back sharply, but then it hits a new high, pulls back, and hits a new high.
The S&P 500 is even better here. You can see the pullback just one or two days, “boom” right off to the races, and “boom” off to the races.
Some things are lagging. Here’s the Small Caps. You can see there’s still a lot of daylight here between it and its 200-day moving average and it has been having trouble getting off its knees.
So, we’re not taking anything for granted. In fact, we have seen a number of new lows start to expand even during the last couple of days so we’ll just see how this plays out, but overall I think from a top-down perspective, you can’t really throw stones at the overall market here. It’s acted pretty well since intermediate-term buy signal and we could even get a longer-term all-clear signal within a week or two, so we’ll see how that goes.
Now, as for individual stocks, there were a lot of setups last week, and a good amount of setups two weeks before that. There are still a lot of setups. There haven’t been a lot of breakouts. There have been not many breakdowns either. It’s just really a lot of two days up and then two days down and just kind of waiting around either for earnings reports or for the growth sectors, the whole growth sectors as a whole kicking into gear.
Here’s Ulta Salon. Now, this doesn’t have earnings until December, but to me I’m just looking at, say, 172 or something. You don’t have to buy it on the exact breakout. We’re not that type of player, but 172 and 173 on the upside with some power would be a good sign. I mean, we have it rated buy here anyway, but I think in general it’s going to wait for the breakout that would be sort of the all-clear signal.
Okay, Restoration Hardware is a perfect example. It pulls back two days, maybe it bounces—that sort of thing, but I would just say you could nibble here, but above 103 and 104 would be a good sign and then eventually above 106 would be even better. Again, they don’t have earnings until December.
Here’s another one we’re watching: Norwegian Cruise Lines. Now this is popping. It’s going to pop today with Royal Caribbean, which had a pretty good reaction to their earnings—same industry, but the level here is probably about 64 bucks a little bit above this high, 63 and 64 bucks that you’re watching. You can just see nice basing pattern. When you see this, it doesn’t look like the market had a huge correction with China and all of this stuff the last couple of months. It just looks like the normal basing pattern consolidation and a big breakout that would be, like I said, the all clear.
You also have to keep another sort of watch list these days. A lot of things are submerging and others are emerging—part of it’s earning season and part of it’s just the way the market is. So, one to watch on the emerging side is Monster Beverage. On the weekly chart, you can see it did have a huge run here. It had a long base—about a year long base. They had a nice run, but it really hasn’t done anything for many, many months. Back to the daily chart, you can see its kind of hang around the 200-day line. Now, there’s rumors they might be getting distributed in McDonald so another testing on the distribution deal with McDonald’s caused a nice accumulation here. So, this is going to maybe ramp up here and pull back. We’ll see how it goes. They do have earnings in a couple of weeks and as usual that will probably tell the tale.
In terms of chip stocks, one that setting up here is Cadvium (CAVM). Again, it’s been sort of herky-jerky. My biggest concern is a herky-jerky stock in the past few years, I mean up, down, up, down. This is a weekly chart, but unless you plan three, four, or five weeks of swaying, it’s been tough. It’s been kind of like the overall market, but with all that said, nice support here, nice support, nice support, a little bit of a shake out on that last retest, but since then it’s acted well. You can get maybe push above 75 bucks, you could buy a little bit and then push above 79 will do the trick for the rest. They have earnings next week and again that will probably tell that tale.
Okay, another setup, ServiceNow (NOW) reacted well at earnings. The growth here is great. You can see just a long kind of basing pattern here and not that volatile. On this chart, it looks up and down, but just basically from 70 to the low 80s for the last five, six or seven months. Okay, so if we get this above 82 I think that’s probably viable. The earnings are out and the reaction was pretty good. We’ll see how it goes. That’s definitely one to watch.
TripAdvisor (TRIP) is another one, kind of like Monster and big volume. It’s had this huge bottom. It’s been out of favor for over a year. It had this kind of a double bottom here and then gaps up on some positive news. They still have earnings coming out here, but they made some deals, instant booking, some new things going on, good projected growth and big and liquid. It’s a leader in its field so it’s got the characteristics of a winner. I don’t think it’s ripe yet. I think it probably needs to set up and get their earnings, but it’s one to add to your watch list. If you want to nibble, of course you could, but put in a reasonable stop. Overall, you’d almost like to see it stretch it legs for a few weeks and then “boom” you’re buying it on December 1st or whatever for a huge run. Okay, so we’ll see how that develops.
And on the energy side, stocks have been choppy, but here’s PDC Energy (PDCE). This is one we’ve been watching for a while just because it was so resilient even when energy stocks were getting killed and you can see it’s been basing out here. It got rejected here. It gets rejected again. Now, it goes back to its old high here kind of a little bit of rejection. It looks like it wants to go higher here. If it can pop above 62 powerfully and close there, that would probably be an interesting sign. If you do want to buy a little bit of an energy stock going forward, okay. If the group does have a run, my guess is some of these here will hit new highs and lead the way higher.
Last, but not the least, keep your eyes on names that you’re not really familiar with but have already hit new highs, and maybe buy on pullbacks or new multi-month highs, okay. Zillow Group is one. Now, this has old overhead and it’s a confusing share split thing so you could use Z or ZG. They both trade similarly, but you can just see kind of an accelerating up trend off the bottom, great story and nice contained pullback. This would be one you should start small. Again, it’s got earnings coming up. No date yet, but probably early to mid-November. Maybe you get a little consolidation here and the 25-day moving average catches up.
And another one is Nvidia (NVDA) here on a weekly chart. They do have earnings coming up in early November, but just a nice base for many, many weeks for a few months here, and then it broke out really as soon as the market—like the first or second day up off this retest in late September, and it’s just been straight up since then. That’s pretty powerful. To me, I think unless there’s an earnings disaster, the next pullback will probably be sharp and that pullback will probably be viable on a stock like this assuming the market remains healthy.
So, overall from a growth perspective, be cautiously optimistic, do some buying and have your watch list ready. If you see some breakouts, especially on earnings, by all means take them, put them on a stop loss and see how it goes. Overall we really wouldn’t go out there and buy six stocks anticipating breakouts because we’re still seeing just as many breakdowns as breakouts, okay. We’d wait for the evidence to turn positive on some of these stocks, and when it does, you can go ahead and buy it.
That’s all the information I have for you today, thanks for watching.
Be sure to come by again next week for another Cabot Weekly Review.