Despite some Iran-related uncertainties, stocks have put on another good show this week, with many major indexes punching out to new highs. As we write this Friday morning, the S&P is up around 1.5% on the week, while the Nasdaq is up more than 2%.
There continue to be a growing number of short-term yellow flags to keep in mind. For instance, some of the broadness of the advance has been lacking so far this year; small- and mid-cap indexes are actually stuck in three-week ranges. And even when looking at the big-cap indexes, they’ve now moved out of trend on the upside, which goes along with many signs of complacency we’ve seen in recent weeks.
“But Mike, you’ve written about these yellow flags for a month and the market keeps going higher!” That’s absolutely true, and it’s the main reason why we don’t overreact to secondary (sentiment, overbought/oversold) indicators—if we did we would have sold everything a month ago! But it’s fact that the risk of some trickier trading (pullback, rotation, random potholes, etc.) has risen, so be sure to keep your feet on the ground.
With that note of caution having been said, the vast majority of the evidence is obviously still positive. In fact, the powerful, persistent advance during the past 15 weeks following a 20-month sideways consolidation in the S&P 500 looks like a great blastoff to us. Again, there will be wobbles and corrections, but the evidence supports this new, major uptrend lasting for months.
Back to the here and now, a lot of what you should be doing on the buy and sell side simply comes down to each individual stock. Obviously, some stocks are stretched to the upside, not near good entry points (and possibly offering a chance to peel off a few shares if you own them), but there are many others that either formed follow-on tight areas (many leaders took December off but have come back to life) or have just lifted from longer consolidations—these are likely decent buys on normal weakness.
Long story short, we remain bullish, and we’re likely to keep our Market Monitor at a level 8. That said, with the environment getting hot and heavy, and with things thinning out a little (referring to the small- and mid-cap indexes), be sure to keep your feet on the ground and be choosy on the buy side.
BUY CANDIDATES
Aecom Technology (ACM) sat around for a couple of weeks after our recommendation, but that ended up being the finishing touch of a seven-week rest. This week’s breakout on big volume looks legit. If you don’t own any, we’re fine buying some here with a stop at 43.
Kansas City Southern (KSU) went dead for about two months starting in early November, but this week, it’s lifted to new highs on three straight days of great volume (a positive volume cluster). The trick is that earnings are due out next Friday (January 17), but we do like the pattern—if you want in, you could nibble here and see how earnings go.
This idea may not trigger, but we’ve been watching Seattle Genetics (SGEN) slowly pull back and consolidate for a few weeks now, and recently, it’s quieted down just north of 110. It’s a smidge below its 50-day line here, but our thought is that the stock probably has another up-leg in it given its long-term breakout in October and powerful run after that. A move above 116 or so in the days ahead could be bought, with a tight stop near 108.
SUGGESTED SELLS
First off, don’t forget to ring the register by taking a few chips off the table with some winners that are very extended –Synnex (SNX) on today’s earnings gap, Tesla (TSLA) after its huge run, and TAL Education (TAL) are three examples. Consider selling a small portion of your holdings and then seeing how it goes.
As for outright sells, we have two today, though as always, could prune more come Monday’s issue:
Arconic (ARNC)
Carvana (CVNA)
SUGGESTED STOPS
Aecom Technology (ACM) near 43
Alnylam Pharm (ALNY) near 109
Apollo Global (APO) near 45
ASML (ASML) near 282
Boot Barn (BOOT) near 42
Bristol Myers (BMY) near 60.5
Burlington Stores (BURL) near 216
Crocs (CROX) near 37
Dexcom (DXCM) near 197
Disney (DIS) near 141.5
Floor & Décor (FND) near 46.9
Fortune Brands (FBHS) near 63
Garmin (GRMN) near 94.5
Generac (GNRC) near 95
Insulet (PODD) near 166.5
Jabil (JBL) near 39.5
Kansas City Southern (KSU) near 149
KBR Inc. (KBR) near 29.5
Lam Research (LRCX) near 278
Lululemon (LULU) near 221
Oshkosh (OSK) near 89
Reata Pharm (RETA) near 196
Reliance Steel (RS) near 116.5
RH (RH) near 202
Seattle Genetics (SGEN) near 108
Synaptics (SYNA) near 60
TAL Education (TAL) near 48
Target (TGT) near 120.5