We’ve seen plenty of split tapes in our day, but this one is about as divergent as we can remember, and this week was another example of it playing out. Coming into today, the big-cap Nasdaq was up about 3% on the week while the S&P 500 was up 1.5%—but outside of a couple of growth measures, the rest of the market was flat (up 0.5% to down), and that’s before what looks like a down opening this morning.
Interestingly, this action happened despite a nice dip in Treasury rates (~20 basis points) that tagged multi-week lows after a tamer-than-expected inflation report. That initially kicked off some heavy buying, but very quickly the broad market fell back into its trading range and even some strong names saw some selling on strength.
While there was a good amount of news and movement this week, nothing has really changed with the evidence: The big-cap indexes are trending up, but the intermediate-term trend for the vast majority of the market is neutral, while the action among leading stocks and sectors is hit-and-miss, with some acting fine but with a few hitting major potholes each week.
Could this divergence be a sign of a coming top that leads to some damage this summer? Sure, it’s possible, so we wouldn’t rule that out. Right here, we’d say most of the market isn’t “bad,” per se, but is simply in a sloppy trading range, essentially still in the consolidation that kicked off in March. Frankly, a few good days could have a lot of indexes/sectors/stocks moving out to new highs.
However, we would say that disjointed markets like this have an elevated risk of changing character quickly—maybe via a decline, or possibly a sharp rotation (where strong stuff sells off while the broad market rallies).
Combine that with the simple fact that so many stocks are hit-or-miss out there, and we’re keeping our Market Monitor at a level 7—holding a chunk of cash for cushion, but also willing to grab some emerging names while jettisoning (or tightening stops on) stocks that falter. All in all, we’re cautiously optimistic, but staying flexible, too.
SUGGESTED BUYS
Fabrinet (FN) is off to a decent start since our recommendation on May 20, and now it’s set up a decent-looking three-week shelf, with support near the 25-day line. Whether you own some or not, you could consider grabbing a few shares if you see a decisive move above 250 in the days ahead
Itron (ITRI) has been moving sideways in a tight range since our recommendation—it’s a hold if you own some, and if not, look for a move above 111 or so to enter. In either case, a relatively tight stop near 102.5 makes sense.
SUGGESTED SELLS
Partial Sells
We don’t want you to keep selling your better performers, but if you have a big position or haven’t sold any of Taiwan Semi (TSM) recently, we think letting go of a few shares after the strong upmove so far this month makes sense—and holding the rest with a trailing stop.
Cirrus Logic (CRUS) and Credo Tech (CRDO) are two more to consider—neither is a huge gain, but both have handed us quick double-digit profits. In this choppy environment, we’re OK putting a little profit in our pocket and holding the rest.
Full Sells
Coupang (CPNG) – nice-looking setup failed for now, cracking 50-day line and tripping our stop.
Glaukos (GKOS) – looks fine but been about a month without much upside or strength. We’ll book a small profit.
Scorpio Tankers (STNG) – really nice setup but the stock just never could get moving. Not a disaster but we’ll cut bait.
Skechers (SKX) – going to take a quick-ish profit, either on our initial or any subsequent buys.
Wabtec (WAB) – similar to GKOS, as it’s not awful but not moving and it’s been trending up for months overall.
SUGGESTED STOPS
ATI Inc. (ATI) near 54.5
Carvana (CVNA) near 99
CNX Resources (CNX) near 24.5
Delta Air Lines (DAL) near 48
Dutch Bros. (BROS) near 34.5
Fabrinet (FN) near 227
GE Verona (GEV) near 158
Howmet Aerospace (HWM) near 75.5
Itron (ITRI) near 102.5
Johnson Controls (JCI) near 67.5
Natera (NTRA) near 96.5
Onto Innovation (ONTO) near 204
PDD Holdings (PDD) near 142
Pulte Group (PHM) near 108
Starbulk (SBLK) near 23.8 (this was adjusted for last week’s 75-cent per share ex-dividend that “dropped” the stock)
Sweetgreen (SG) near 28
Taiwan Semi (TSM) near 149
Tandem Diabetes (TNDM) near 42.5
United Airlines (UAL) near 49.5
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