Stocks started off somewhat promisingly this week, with a huge plunge Monday morning followed by a massive reversal that afternoon. But stocks haven’t been able to build on that at all, with numerous intraday rally failures and with some indexes already probing lower lows, especially broader and growth-oriented indexes and funds.
Simply put, we remain in a downtrend, with every major index trading below their 25-day, 50-day and even 200-day moving averages. And most stocks have gone along for the ride—coming into today, 69% of NYSE stocks and 86% of Nasdaq stocks are below their 200-day lines.
In fact, if you’re looking for a ray of light, that’s probably it: With everything getting hit, we’re now seeing some legitimate extremes in things like the number of new lows (nearly 26% of the Nasdaq hit a 52-week low on Monday), and the percent of Nasdaq stocks down at least 50% from their peak (now up to 44%!), as well as in some sentiment measures like the AAII survey (this week’s reading saw the most bears in nearly eight years) and equity put-call ratio (15-day average is the highest since the pandemic crash).
Thus, we think it’s fair to say the odds of a bounce are growing, though we’d also note that the fact that the market hasn’t reacted to these oversold readings of late (especially Monday’s wipeout that saw well over 2,000 stocks hit new lows on the day) isn’t encouraging. Hence why we remain defensive while we wait for the sellers to finish up their work.
Once the market can get off its knees, we’ll ideally start the repair phase, where the peppiest stocks can start to repair the damage on their charts. But at this point, save for a couple of stocks here and there, everything is still in the decline phase, so barring a small nibble here and there, it’s best to stay safe and wait patiently for the bulls to draw a line in the sand.
Suggested Buys
CF Industries (CF) has been a rarity—not only is it holding up well, but after dipping just below its 50-day line last week, it staged a strong bounce on three straight days of massive buying volume. Frankly, we think it’s a pretty good risk/reward around here, with a stop near 63.
ZIM Shipping (ZIM) is still acting like nothing much is going on in the market—yes, the breakout attempt briefly failed, but after tagging its 50-day line Monday morning, it’s lifted back to its highs (albeit on just OK volume). Any reasonable dip from here could be tempting for a nibble, with a stop in the low/mid-50s.
Suggested Sells
The following stocks all tripped their stop or broke down and will be listed as sells, though some judgment should be involved here—don’t just hold and hope, but if you have a profit and already have a ton of cash, we’re not opposed to giving things a bit more wiggle room. Still, following the system, these names will be kicked off the list (though if some bounce they could be featured in the weeks ahead):
A.O. Smith (AOS)
Ford Motor (F)
Fluor (FLR)
Freeport McMoRan (FCX)
Hyatt (H)
Jabil Circuit (JBL)
Starbulk (SBLK)
Taiwan Semi (TSM)
Suggested Stops
FYI, given that we’re defensive, the market is extremely volatile and we haven’t been advising big positions for a while, we’re going to steer away from a ton of new stops. Definitely use the loss limit ranges if you do nibble on things, but our goal at this point is to start monitoring some resilient stocks/sectors for the next sustained uptrend. Don’t hesitate to email me (mike@cabotwealth.com) if you’re looking for stops, but at this point we’re more building a watch list than diving head first into things.
CF Industries (CF) near 63
Diamondback Energy (FANG) near 113