WHAT TO DO NOW: Most of the market’s evidence remains bullish, so we remain optimistic that higher prices are ahead; the Model Portfolio is more than 80% invested in nine strong stocks. That said, it’s not all peaches and cream, as some key indexes are again testing their 50-day lines and we’re still in the thick of earnings season. Thus, we’ll sit tight tonight and keep a close eye on the market and the earnings reactions of individual stocks.
Current Market Environment
The market finished mixed today after the Fed left interest rates unchanged. At day’s end, the Dow was up 7 points while the Nasdaq lost 23 points.
When it comes to the environment, we’re optimistic because all three of our market timing indicators are currently positive, with our Tides remaining on its Buy signal from a week ago and our Cabot Trend Lines and Two-Second Indicator still bullish. That’s why we’re a bit more than 80% invested in leading growth stocks, and could put more cash to work if the market strengthens from here.
Yet that last part about the market strengthening is key. Three of the indexes we track (S&P 600, S&P 400 and NYSE Composite) are basically back to their 50-day lines after today’s dip. Moreover, the only index to clearly hit new highs during the recent rally was the Nasdaq, which means most indexes are no higher today than they were two months ago.
Throw in the fact that we’ve seen greater than 40 new lows on the NYSE in two of the past three trading days and there are still a few flies in the market’s ointment.
Despite these factors, there’s no question that the majority of the evidence is bullish right here, but with most indexes failing to reach new highs, we can’t say the market’s two-month consolidation is definitely over. We have many stocks reporting earnings this week, so we could have some moves (or ratings changes) going forward.
But tonight, we’re going to sit tight with our nine stocks (which includes two half positions) and cash position of around 18% and closely watch the progress of the market and our stocks.
Model Portfolio
Alibaba (BABA 117) has been rallying steadily in recent days before finally giving up some ground today. We’re optimistic BABA has become a liquid growth stock leader of this bull move, but a lot will depend on earnings, which will be released on May 18 (two weeks from tomorrow). Hold on if you own some, and if you don’t, try to buy on dips of a couple of points. BUY.
Facebook (FB 152) has gone vertical during the past couple of weeks (registering new price and relative performance peaks), bolstered by a combination of a strengthening market, positive earnings from some other Internet advertising players (like Google) and general optimism surrounding Instagram, which recently topped 700 million active users. Earnings are due out tonight, and a pullback wouldn’t be shocking given the recent run. As always, though, we’ll just take what comes—with the stock acting well, we’ll stay on Buy, but will update you if we have any changes in the days ahead. BUY.
Netflix (NFLX 156) was subject to a hack recently, with episodes of its upcoming season of Orange is the New Black released online. That made headlines, but the stock hasn’t shown much interest—it shot ahead to new highs this week! We’re optimistic that NFLX’s action since mid-January (three months of no progress, a shakeout after earnings, and now a big-volume move to new highs) has paved the way toward a new upleg. BUY.
Like the S&P 500, the ProShares Ultra S&P 500 Fund (SSO 87) rallied nicely last week but remains shy of its March peak. At this point, a dip back to 83 would make the past two months look toppy and would cause us to book partial profits. But we don’t want to sound overly negative here—we remain mostly bullish because the longer-term trend is clearly up and the intermediate-term picture has brightened. We’ll stay on Buy, and will look for a move above 88 to confirm the new uptrend. BUY.
Shopify (SHOP 82) reported another great quarter on Tuesday morning, with revenues up 75%, including a 62% gain in monthly subscription recurring revenue, while an 81% gain in gross merchandise revenue topped forecasts. The loss per share was also smaller than expected, and management hiked its revenue outlook by a few percent. Just as important, the top brass detailed some new offerings it’s rolling out, including its own chip card reader and an expansion into wholesale e-commerce (compared its current focus on business-to-consumer e-commerce). The stock reacted well to the report and remains a firm Hold if you own some. For new buying, though, we’re waiting for some tightness or consolidation. HOLD.
Tesla (TSLA 311) popped to new highs on Monday before giving back those gains yesterday and today, but overall, the stock remains in good shape. The key will be its reaction to earnings, which are due out tonight. A big negative reaction (especially if it dives below the 50-day line near 280) would have us selling our half position, but a positive reaction could have us filling out our position. For now, we’ll keep our Buy-a-Half rating, but will update you on any changes. BUY A HALF.
Universal Display (OLED 91) is in a similar boat as TSLA—the stock is in good shape, but the company reports earnings tomorrow after the close. OLED has a history of big moves on earnings, so there is risk, but we’re OK owning a half position and seeing what comes. We still believe that a positive reaction could kickoff a big advance giving the potential mass market adoption of organic light emitting diodes in the years ahead. BUY A HALF.
Veeva Systems (VEEV 54) has pushed off its 25-day line on light volume in recent days, continuing its overall uptrend. After a few new product introductions during the past month, the firm has been quiet on the news front in recent days. If you don’t own any, you can buy some around here or (preferably) on dips of a point or two. The next quarterly report isn’t due until early June. BUY.
XPO Logistics (XPO 49) spiked from support near 45 to 51 during last week’s rally, before sagging a couple of points. The big event will be earnings, which are due out before the open tomorrow—the headline sales and earnings figures are obviously important, but just as important will be the firm’s free cash flow and any change in the firm’s overall outlook for the next year or two. HOLD.
Watch List
Arista Networks (ANET 141): ANET remains resilient ahead of its earnings report tomorrow evening.
Chipotle Mexican Grill (CMG 480): CMG reported a fine first quarter, though the stock has hesitated. It’s still worth watching.
Exact Sciences (EXAS 31): Exact Sciences has a new, revolutionary colorectal cancer screening test that’s non-invasive, can be done at home and has excellent results. It could prove to be a new standard of care in colon cancer screening! Revenue growth is rapid, and the stock recently gapped up to multi-year highs on earnings.
Five Below (FIVE 50): FIVE has a story we love, and the stock is approaching all-time highs as part of a three-year consolidation.
Square (SQ 18): SQ nosed to new highs this week on average volume, but earnings, due out tonight, will tell the tale.
