While the big-cap indexes were acting fine, we had been writing about an increasing number of yellow flags out there—it started with secondary measures like sentiment (which got buoyant in the weeks after the election), and early last week, we saw the first signs that some key leading stocks were coming under pressure. Indeed, we came into this week with our Market Monitor down to a level 6.
And now this week, we’ve seen those selling pressures spread to the rest of the market, with just about everything—big-cap indexes, broader measures and leading stocks—getting hit, with the Fed’s less-dovish stance and fears of a government shutdown the reasons given for the selling.
Of course, what matters to us is the actual action, and on that front, the intermediate-term trend has turned down for the general market, while an increasing number of leading stocks (and recent setups) are falling by the wayside. Indeed, some of the numbers out there are surprisingly weak: As of this morning, three-quarters of NYSE stocks are south of their 50-day lines, while for December as a whole, many indexes are off big (S&P 500 equal-weight is off 8%, IBD 50 Index is down 5% are two examples).
Now, with that all that said, we’re far from raging bears here—we’re definitely cautious but also very flexible. The broad selling that started at the beginning of December, along with this week’s drop, has created many very oversold breadth-type readings (there have been more decliners than advancers within the S&P 500 every day this month!)—and when you combine that with the fact that it’s year-end (seasonally bullish), it’s certainly possible we can bounce from here, and possibly do more than that. After all, while a lot look suddenly sloppy, many leaders have yet to crack 50-day lines and other key support, and a couple of good days would make a big difference.
Having already pared back a good amount earlier, we think it makes sense to pare back a bit more now given that many stocks have taken it on the chin—we’re moving our Market Monitor down to a level 5.
That said, we’re also very flexible: If we see a strong rebound (not just in the big-cap indexes, but in the rest of the market and especially in leading names), we could quickly put a chunk of cash back to work, but given the abnormal weakness, we want to see that first before acting on it. Cautious, but flexible.
SUGGESTED BUYS
GE Vernova (GEV) was just written up recently, but it’s handled itself about as well as any name out there, both overall (relatively calm six-week rest after a huge run) and recently (support above the 50-day line). We’re OK with a nibble, albeit with a tight stop near 310.
Trip.com (TCOM) is certainly among the strongest China names, and that group hasn’t been under pressure like most things like this week. Following its recent breakout, the latest dip looks reasonable, so rolling the dice with a small position and a stop around 66.5 is OK with us.
SUGGESTED SELLS
Partial Sells
None this week
Full Sells
Blackstone (BX) – tripped stop
CBRE Group (CBRE) – tripped stop
Cava (CAVA) – it’s been a great trade from earlier this year, and we’ve taken chips off the table a few times, but the stock’s recent breakdown and straight-down selloff is a sign its character has changed.
Crescent Energy (CRGY) – tripped stop
Deere (DE) – tripped stop, though it is trying to hold its 50-day line here.
Freshpet (FRPT) – tripped stop
Insulet (PODD) – tripped stop
Procept Biorobotics (PRCT) – tripped stop. Could never really get going after its earnings gap with 100 being resistance.
Toast (TOST) – tripped stop
SUGGESTED STOPS
Alaska Air (ALK) near 57.5
DoorDash (DASH) near 161
Fortinet (FTNT) near 92
GE Vernova (GEV) near 310
Howmet Aerospace (HWM) near 107
KKR (KRR) near 139.5
Lumentum (LITE) near 81
Marvel Technology (MRVL) near 102.5
MasTec (MTZ) near 129
Norwegian Cruise Lines (NCLH) near 24
Procore Tech (PCOR) near 72
Rubrik (RBRK) near 58
Shopify (SHOP) near 100
Trip.com (TCOM) near 66.5
Viking Holdings (VIK) near 42.5
XPO (XPO) near 140
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