Not many people will claim this was a great week, including us, but taken in combination with last week’s action, and we’re actually optimistic that Monday was the workable low we’ve been looking for. It started, of course, with some real extremes seen last week, including nearly 34% of Nasdaq issues hitting new lows (January 24) and 86% of Nasdaq stocks closing below their 200-day lines (January 27).
Then we saw day after day of big volatility (a sign that the bulls were finally stepping up after a big decline). And then we had a solid rally, with the major indexes getting off their knees in a meaningful way for the first time all year. Even the wild volatility seen in recent days (FB, SNAP, PYPL, PINS, AMZN) isn’t out of character for a post-crash bottoming process.
Now, are we very confident a bottom has been reached for a few weeks? No, we can’t say that. But just looking at the odds, we think they favor the market holding that low and “working” off of it—meaning stocks and indexes can start repairing the damage from the past couple of months, while hopefully some fresh leaders of the next advance start to stand out.
That’s the (possibly) encouraging news. Beyond that, though, it’s far less clear. When looking at any of the intermediate-term evidence, it’s hard to say much has changed: The trends of the major indexes remain down, and that’s especially so for growth-oriented funds, which haven’t even approached their falling 25-day moving averages yet. The same goes for most stocks—growth stocks are still buried, while even most cyclical names are in no man’s land, while defensive areas (XLP) are perched near their highs.
Thus, while the near-term looks better/more stable, we’re not advising any major change in stance—if you want to play some near-term bounces, that’s fine, but as we’ve seen in recent days, that’s a tough game, especially during earnings season. Bigger picture, until the main evidence improves, we believe it’s best to be mostly defensive, holding a lot of cash and keeping new buys on the small side, preferably in names that have shown good-volume buying after earnings.
If things improve from here, we could take a step or two further into the market’s waters, but the onus remains on the bulls to step up.
Suggested Buys
Concentrix (CNXC) has been one of the few growth-y stocks that held up well during the implosion and has raced to new highs on good volume during the nascent bounce. Earnings are already out of the way, too (reported mid-January). We’re not big on chasing anything in this environment, but pullbacks of a few points could be tempting, with a stop in the 180 area.
Nexstar Media (NXST) is another name that’s very impressive, holding support in the low 150s and then zooming to new price highs before pulling in with the market during the past couple of sessions. It still has earnings coming in three weeks or so, but we’re not against a nibble here or on a bit more weakness with a stop around 150-152.
Suggested Sells
Oil stocks are strong, and we’re certainly not calling a top in them; in fact, many oil service names (HAL, SLB) look like excellent buys on dips. But if you have ridden something up for a few weeks, we wouldn’t be opposed to taking partial profits on today’s pops and holding the rest.
As for outright sells:
CH Robinson (CHRW) – collapsed on earnings.
Webster Financial (WBS) – unimpressive bounce even as the market rebounded and rates go up.Suggested Stops
SUGGESTED STOPS
CF Industries (CF) near 65.5
Diamondback Energy (FANG) near 114
Eastman Chemical (EMN) near 115
Huntsman (HUN) near 34.5
Teck Resources (TECK) near 29.5