This remains an “on the one hand, on the other hand” type of market.
On the one hand, we continue to see more and more setups among growth stocks along with a lack of major selling, and starting on Wednesday, even some of the stalled-out cyclical names (especially metals and energy) began to find buyers. Plus, of course, the major indexes are still in good shape, all of which are above their 50-day lines, which keeps the intermediate-term trend pointed up.
On the other hand, the environment still resembles a bit of a meat grinder in a couple of ways. First, we’re seeing incessant rotation on a near-daily basis, with different groups popping or dropping depending on the flavor of the day. Second, and more important to us, is that we’re still seeing a bunch of selling in stocks that nose out to new high ground, especially on the growth side of things—a few have tried to move out this week but were quickly smacked lower.
In the near-term, that means this remains a buy-on-weakness type of market, but bigger picture, if the market is going to trend higher, we’re going to need to see some stocks move out to new highs and keep going.
All of this is more descriptive than predictive—i.e., there’s nothing that says that these growth stocks aren’t slowly chewing through overhead resistance, paving the way for some powerful liftoffs during earnings season. (Indeed, we’re beginning to see a few names here and there show some big upside buying volume, which has been a key missing ingredient of late.) But with the repeated potholes out there and elevated sentiment (advisor sentiment is near its highest in years!), we think it’s best to go relatively slow, honor stops, take partial profits when offered and really focus on getting good risk-reward entry points.
We’ll likely leave our Market Monitor at a level 6 in next Monday’s issue, though some breakouts could easily change that.
SUGGESTED BUYS
Some of the super-hot chip equipment names have pulled in a bit during the past couple of weeks as money has rotated into other areas. That said, the names look fine and likely buyable if you want to take a stab at one or two—Applied Materials (AMAT) and Lam Research (LRCX) are two examples that look good around here. If you enter, a simple 10% loss limit from your purchase price lines up pretty well with each stock’s 50-day line.
Dropbox (DBX) hasn’t done much since our writeup a month ago, but shares have basically moved straight sideways (up and down) during that time, and this comes after a massive-volume shakeout and breakout in early March. We like the setup—if you’re not in, you could start a position here with a tight stop near 25.
It’s not strong, so this is an aggressive setup, but Shake Shack (SHAK) has tightened up nicely in recent weeks and is beginning to test upside resistance in the 120 area. We’d prefer to see a pickup in buying volume, but if you wanted to nibble (small position) on a push into the low 120s, with the idea of buying more if it continues to head up, that’s fine by us.
Uber (UBER) has been ridiculously frustrating in recent weeks, with moves from 60 to 47 to 64 to 51 to 61 to 52, all since the start of January! However, the stock has (a) finally found some big-volume buying this week and (b) has so far held that move. Yes, there’s still resistance to chew through, but we’re OK starting a position here.
SUGGESTED SELLS
Combing through the list we’re going to prune four names, though if you want to hold with a trailing stop, that’s fine, too. But we’re going to take the capital and move on.
The sells are:
Big Lots (BIG)
Johnson Controls (JCI)
Magna Int’l (MGA)
PDC Energy (PDCE)
SUGGESTED STOPS
Amkor (AMKR) near 22
Applied Materials (AMAT) near 120
Big Lots (BIG) near 63.5
Cheesecake Factory (CAKE) near 54
Cimarex Energy (XEC) near 57
Devon Energy (DVN) near 20.9
General Motors (GM) near 55
Goldman Sachs (GS) near 319
Johnson Controls (JCI) near 58
Kukicke & Soffa (KLIC) near 47
Lyft (LYFT) near 58
Magna Int’l (MGA) near 85
Marriott Vacations (VAC) near 162
Micron Technology (MU) near 85
PDC Energy (PDCE) near 32
Shake Shack (SHAK) near 111
Sonos (SONO) near 36.5
Summit Materials (SUM) near 26.5
Thor Industries (THO) near 127
Urban Outfitters (URBN) near 34
ZoomInfo (ZI) near 46