This week was generally one of stabilization, with the major indexes down 1% or less as of this morning, as volume and volatility tapered off. This continues a trend seen since last Thursday (and, for many stocks, last Monday) of stocks, sectors and indexes finding some support after a horrific three-week decline.
Near term, there remain some encouraging secondary positives starting to emerge. The broad market is one, as the number of new lows (a) flashed a brief positive divergence during the slide and (b) have dried up nicely of late, with three of the past four sessions (coming into Friday) seeing sub-40 new lows on the NYSE (a rough demarcation total for healthy/unhealthy).
Sentiment, too, has clearly waned, with surveys (the AAII survey is historically bearish, and even Investors Intelligence has more bears than bulls) flashing contrary green lights, we’re even seeing some big-picture sentiment measures (the Bank of America monthly survey saw big investors pare back in a big way last month) coming down.
Throw in the fact that Treasury rates are trending lower, and you have some crocuses out there for the market—ideally, the stabilization of late is the start of the bottoming process that, while likely to take some time, can allow future leaders to show relative strength and some beaten-down areas to round out launching pads.
Those are all background positives that are good to keep in mind—but we advise making most investment decisions based on the primary evidence, which means the trends of the indexes and the action of potential leading stocks. And on that front, nearly all the intermediate-term evidence remains negative, with the trends pointed down and with most stocks in the same boat.
As for potential leaders, the stabilization has allowed a few names and a theme or two to perk up some, and if we get a more sustained bounce, we’d expect to see more wheat separate from the chaff.
Even so, for the here and now, we advise remaining defensive—after a week-plus of holding above the lows, we could nudge up our Market Monitor a bit if we see some strong follow-through from here, but as always, we have to see it first. Today, our Market Monitor remains at a level 3, as we’re keeping most of our portfolio on the sideline and, when buying, doing so in only small amounts.
SUGGESTED BUYS
GE Aerospace (GE) is one of a few names in the group (including Standard Aero, SARO, written about on Monday) that’s handling itself well—GE hit new relative performance peaks on Wednesday. If you don’t own any, we’re OK with a nibble on a retreat toward 200, with a stop near the recent lows (188 or so), making for a tight percentage stop.
Royalty Pharma (RPRX) dipped during the last portion of the market decline but recouped most of those losses and looks under control. If you don’t own any, a small position here-ish and a stop just under the 50-day line and prior low (32) seems like a decent risk-reward.
SUGGESTED SELLS
Partial Sells
None this week
Full Sells
Encouragingly, none this week as most stocks stabilized alongside the indexes
SUGGESTED STOPS
Akero Therapeutics (AKRO) near 41.5
Alamos Gold (AGI) near 23.5
Alkermes (ALKS) near 32
Axsome Therapeutics (AXSM) near 115
Exelixis (EXEL) near 34.5
Life Time Holdings (LTH) near 28
Take-Two Interactive (TTWO) near 197
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