The market has been extended and vulnerable to a sharp pullback for the past couple of weeks, and last night’s surprise attacks overseas provided a reason for the sellers to do some work—this morning, the major indexes and most stocks are taking a hit.
As usual, when the news flow gets hot and heavy, it’s best to just stick with the action of the market itself; guesses of what will come next are just that, so we prefer to simply go with the evidence.
First and foremost, last night’s news and today’s action did nothing to undermine the market’s overall stance. The intermediate- and longer-term trends are up (all the major indexes we track are still above their 25-day lines), and for the week the S&P 500 and Nasdaq are near unchanged.
In the short-term, though, we’re leaning toward the view that the market may have finally begun the long-awaited pullback/consolidation—as we wrote recently, the odds favor a trickier environment (news-driven moves, rotation, earnings season soon, etc.) in the weeks ahead that could serve to bring the fear level up.
We’ll obviously be keeping an eye on things, but given the evidence, we’re still bullish overall, though our focus will be on properly handling individual stocks. If you have what looks like a real leader of the advance, partial profits are always an option, but we also think giving it some room (and time) to consolidate makes sense—until proven otherwise, the odds favor these leaders having more upside down the road.
Conversely, if you have some laggards and losers, or even own some rocket shots that are extended to the upside, tightening stops/loss limits is advised, and should you get knocked out of some names (always possible), we advise being choosy on the buy side.
BUY CANDIDATES
Arconic (ARNC) boomed as soon as the market got going in early October, rallying six weeks in a row from 24 to 31. Since then, it’s basically marked time, with the 10-week line catching up. It could break down if the market keels over, but we see this as a good risk-reward situation—if you want in, you can start a position here with a tight stop near 29.5.
Fortinet (FTNT) has had a nice run since emerging from a year-long base in November, but it’s been mostly consolidating since mid-November. With the 50-day line now at 100 and rising quickly, and with FTNT having found support at its 25-day line this week, we’re OK starting a position here or on dips with a stop around the century mark.
SUGGESTED SELLS
Today we have three sells, all of which tripped stops, though as always, we could add to that tally when we review everything again Monday afternoon. The three sells are:
Leggett & Platt (LEG)
Murphy USA (MUSA)
Sherwin Williams (SHW)
SUGGESTED STOPS
Aecom Technology (ACM) near 41
Allegiant Travel (ALGT) near 169
Alnylam Pharm (ALNY) near 108
Apollo Global (APO) near 44.5
Arconic (ARNC) near 29.5
ASML (ASML) near 280
Axon Enterprise (AAXN) near 69
Boot Barn (BOOT) near 41
Bristol Myers (BMY) near 59.5
Burlington Stores (BURL) near 214
Crocs (CROX) near 36.5
Dexcom (DXCM) near 194
Disney (DIS) near 141
Fortune Brands (FBHS) near 62.5
Garmin (GRMN) near 94
Generac (GNRC) near 95
Insulet (PODD) near 165
Jabil (JBL) near 39.5
Kansas City Southern (KSU) near 147.5
Lam Research (LRCX) near 275
Lululemon (LULU) near 218
New Oriental Education (EDU) near 118.5
Reata Pharm (RETA) near 195
Reliance Steel (RS) near 115.5
RH (RH) near 202
Seattle Genetics (SGEN) near 108
TAL Education (TAL) near 45.5
Target (TGT) near 119.5