From a big picture perspective, the bull market remains in effect and healthy. The intermediate- and longer-term trends of the major indexes are pointed up, and the trends (and overall action) of leading stocks are healthy. Thus, we remain bullish.
That’s not to say, though, that every stock is kiting higher. In recent weeks, the advance has become more selective—many stocks are hitting new lows, unweighted indexes (even those for the S&P 500 and Nasdaq 100) have been lagging and we’ve seen a decent (not overwhelming) number of Top Ten stocks trip their stops since mid-October.
The broad market has had some issues a few times this year, only to snap out of it. And to this point, the weakness/lagging hasn’t infected leading stocks or cracked any major indexes, so we don’t advise selling or trading based on the broad market’s action. But it is something to be aware of, and if you’re nearly fully invested, it’s not a bad idea to hold some of the cash from any stocks you get knocked out of.
As for new buying, there aren’t a ton of great setups out there at this time, which isn’t shocking given the run-up in leading stocks and the sluggishness of the broad market. Right now, we’re mainly looking for either (a) powerful breakouts on earnings or some other meaningful news, (b) tightness after a big rally, or (c) a quick, sharp shakeout/knockout action, which could clear the decks for higher prices. In other words, pick your spots and look for either unusual strength or dips to buy.
Of course, if the evidence changes, we’ll change our stance. But until that happens, we remain bullish, meaning you should continue to hold your winners (though partial profits here and there are fine) and remain heavily invested.
BUY IDEAS
Caterpillar (CAT 136) has been a mega-cap leader this year, and the stock has now eased lower since a modest gap up on earnings in late-October. A dip to the 50-day line (near 130) is possible, but we’re OK with a buy here or on further weakness, with a stop near 128.
MKS Instruments (MKSI 103) enjoyed a great, persistent advance in September and October, though this month shares have pulled back below their 25-day line. Still, the retreat looks normal—it’s always possible a top has been reached, but to us, picking up some shares here or on dips toward 100, with a stop around 95, makes for a good risk-reward trade.
Banks are rarely exciting, but we like the look of SVB Financial (SIVB 214), which we wrote up just a couple of weeks ago after its powerful earnings gap. Shares dipped with the financial sector to 204 a few days ago before bouncing 10 points. If you don’t own any, we’re OK buying here with a stop in the 200 to 205 area, which is below the rising 25-day line.
Vishay (VSH 22) broke out in September and had a huge run through October, before catching its breath during the past couple of weeks. It may need more time, but the odds favor this consolidation giving way to higher prices. The stock looks buyable under 22 with a stop around 20.
YY Inc. (YY 108) etched a base-on-base formation starting in August, with its recent 84 to 97 zone sitting on top of a 68 to 80 zone from August and September. Then, on Wednesday, the stock exploded higher on earnings on excellent volume. It’s a bit extended, but we like the action and the fact that it’s just coming out of this consolidation—we’re OK buying some here or on dips, with a stop near 94.
SELL IDEAS
Arista Networks (ANET 233) has gone vertical since its earnings report, and this comes after a big run since the start of the year. If you have a good profit (whether from earlier this year or more recently), consider taking some of it off the table and letting the rest ride.
It’s a similar story with IPG Photonics (IPGP 237), which is up another 30 points just during the past couple of weeks. It’s extended in both the short- and long-term, so go ahead and book some partial profits.
Same thing with Square (SQ 44)—take some off the table given its big run both recently and over the past many months.
As for outright sells, we have five that tripped their stops this week: BitAuto (BITA 39), China Lodging (HTHT 125), Meritor (MTOR 23), Navistar (NAV 38) and Terex (TEX 45).
SUGGESTED STOPS
58.com (WUBA 74) near 66
Abiomed (ABMD 193) near 175
AbbVie (ABBV 94) near 88
Alibaba (BABA 185) near 169
Align Technology (ALGN 253) near 213
Alnylam (ALNY 127) near 117 (we had an error here last week)
CBOE Holdings (CBOE 116) near 108
CF industries (CF 36) near 34.5
E*Trade (ETFC 44) near 42.6
Facebook (FB 180) near 171
Guidewire Software (GWRE 81) near 77
IPG Photonics (IPGP 237) near 205
Juno Therapeutics (JUNO 59) near 47.5
Lear Corp. (LEA 173) near 167
Ligand Pharmaceuticals (LGND 141) near 137
Nintendo (NTDOY 50) near 46
Nvidia (NVDA 212) near 189
Planet Fitness (PLNT 30) near 27
Pure Storage (PSTG 17) near 15.8
Red Hat (RHT 125) near 115
Salesforce.com (CRM 107) near 98.5
Sociedad Quimica (SQM 59) near 53.5
SolarEdge (SEDG 38) near 31.5
Spirit Aerosystems (SPR 81) near 76.5
Square (SQ 44) near 32.5
Take-Two Interactive (TTWO 117) near 105
Tronox (TROX 26) near 24.5
Universal Display (OLED 181) near 142
Winnebago (WGO 49) near 44
Yelp (YELP 46) near 43
YY Inc. (YY 108) near 94