The year started out pretty well over the first two days (last week), but this week has been more of a downer, with the major indexes down a bit and with some leading growth stocks again coming under pressure. Going into Friday, most major indexes reversed early-week gains and are down 0.5% to 1% on the week and that doesn’t include what looks like a morning gap down following this morning’s jobs report.
Stepping back, not much changed with the top-down evidence—the intermediate-term trend of the market remains neutral-to-down, with broader indexes (think small and mid-caps, as well as equal-weighted big-cap measures) actually testing their correction lows on Wednesday and with the S&P 500 and Nasdaq gyrating wildly near their 50-day lines.
More important, the action of many leading growth titles remains volatile at best, with many getting tossed around and more names sagging and testing (or cracking) intermediate-term support.
Now, we will say a couple of positive things. First off, this corrective phase for leading titles (which is essentially what Top Ten focuses on) is now a month old, which has separated the wheat from the chaff; while many names have cracked, many are showing relative strength, with most of the names on our list holding well so far—indeed, we have no new sells this week despite the volatility (though there are many just above their stops).
Second, the month of tedious action has dented sentiment, which had become jubilant (a good thing). And third, we’d note that there’s been no rush into defensive areas of the market lately, which is a sign that big investors aren’t eager for risk-off investments.
Throw in the fact that early January is known for fakeouts, shakeouts and volatility as big investors reposition their portfolios, and you should remain flexible—a few good days (for the indexes, yes, but especially among resilient stocks) could change the outlook.
Still, we always deal with the here and now, and the fact is that the trends aren’t up for the major indexes and the vast majority of stocks (73% of S&P 1500 stocks—small, mid and large caps—are south of their 50-day lines). Given the selling on strength seen this week, we will pull our Market Monitor back down to a level 5, but our stance remains largely the same: We advise playing some defense for now, holding plenty of cash and keeping new positions small, while we patiently wait for the buyers to re-take control.
SUGGESTED BUYS
We continue to see choppiness but resilience among many networking-related AI plays. Broadcom (AVGO) staged a monstrous gap up last month and, not surprisingly, has chopped around since—but it hasn’t done anything wrong and the 25-day line (above 215 on Friday) is catching up. If you don’t own any, we’re OK starting small here with a stop around 210.
DoorDash (DASH) does have overhead in the 180 area that could present issues for the stock, but the bottom line is that shares have been mostly holding the 50-day line and, after Wednesday, are 4.4% off their highs—very resilient compared to most growth titles. We’re OK with a nibble here and a tight stop under the recent lows, near 161.
SUGGESTED SELLS
Partial Sells
Granted, it’s not a huge profit, but if you scored a 10%-plus gain on Kyndryl (KD) since our late-December recommendation, we’d consider selling some and holding the rest given the environment.
Full Sells
None today, though we’ll see what the world looks like come Monday evening’s issue.
SUGGESTED STOPS
Alaska Air (ALK) near 60
American Airlines (AAL) near 16
Astera Labs (ALAB) near 113
Broadcom (AVGO) near 211
Ciena (CIEN) near 78
Credo Tech (CRDO) near 60
DoorDash (DASH) near 162
Fortinet (FTNT) near 92
GE Vernova (GEV) near 330
Howmet Aerospace (HWM) near 109
Lumentum (LITE) near 81
Marvel Technology (MRVL) near 107
MasTec (MTZ) near 135
Procore Tech (PCOR) near 73
Reddit (RDDT) near 146
Rubrik (RBRK) near 57.5
Shopify (SHOP) near 102
Urban Outfitters (URBN) near 52
Wix.com (WIX) near 203
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