Movers & Shakers Update February 19, 2016
Michael Cintolo, Chief Analyst
Email: Mike@cabot.net
Follow me on Twitter: @MikeCintolo
Let’s start with a look at the big picture. We’ve seen (a) a huge decline in the market over many months, (b) multi-year extremes in breadth and sentiment, (c) a brief bottoming process, (d) some positive divergences during that process (fewer stocks hitting new lows, etc.) and (e), this week, a strong three-day pop off the lows.
In fact, from a trend perspective, if the indexes can hold and build on these gains next week, our intermediate-term indicator could turn green.
All of that is to the good, and if the intermediate-term trend does turn up, we’ll likely bump up our Market Monitor a notch or two and begin to slowly come off the sideline.
That said, there are still plenty of potholes for the market to deal with. First of all, we haven’t seen the trend turn yet, and thus, we continue to stick with a defensive stance. It’s important not to anticipate any signal.
Second, even if the intermediate-term trend does turn up, we advise going slow. Why? Because the longer-term trend of most major indexes and the vast majority of stocks is still down; even after this pop higher, we see an average of 80% of NYSE and Nasdaq stocks below their 200-day moving averages.
Yes, those figures are “oversold” and thus could lead to further upside probing, but it also means most stocks have a lot of overhead resistance (potential selling on the way up), which will tend to stunt any advance.
Moreover, following a seven-month, 17% to 21% decline (depending on the index), odds are that a three-week retest of the lows, as we saw, isn’t enough to build a solid bottom.
Long story short, we have seen some improvement in the evidence during the past couple of weeks, which is encouraging. But we can’t say the stars are all aligned either. Thus, you should just take it as it comes—right now, we advise a defensive stance, though if the intermediate-term trend turns up, we’ll slowly come off the sideline and see if the rally gains traction. Stay tuned.
Buy Ideas
Cree (CREE 30)
continues to act well, pushing to multi-month price highs this week on above-average volume before dipping the past couple of days. The evidence suggests the stock bottomed out in the 23 to 28 area for many months, so if you’re game, you could buy a small position here with a stop near 27.5.Edwards Lifesciences (EW 86)
is one of the few stocks that hit new highs in early February (during the market’s brief pop higher), hit a higher low during last week’s selloff, and this week, shot to higher highs. Great relative strength! We’re OK with a small purchase on this dip, with a stop near 78.It’s a similar story with Five Below (FIVE 37), although in fairness, FIVE has lots of overhead to deal with from last summer. Still, the stock’s action since November has been solid, and the rebound off the 50-day line to new multi-month highs this week is good to see. Taking out a small position below 36 and using a stop around 32.5 (just below the 50-day line) could work.
PayPal (PYPL 36)
is still within a trading range (30 to 38), but we like the look of its overall IPO base. One idea is to nibble around here with a stop near 32, and look to fill out your position should the stock leap above 38 and the market’s intermediate-term trend turn up.We still like the look of Super Micro Computer (SMCI 32)—after soaring from 21 to 33 in just a few weeks, the stock has acted normally as it consolidates between 29 and 33. You could nibble here (or, ideally, on a dip below 31), with a stop around 28.
TAL Education (XRS 50) surged to new price highs on excellent volume this week, which is very encouraging. Of course, Chinese stocks are still lagging, but we think XRS can work if the market gets going. It’s buyable here on dips of a point or two, with a stop near 45.
Universal Display (OLED 47) isn’t necessarily buyable here, but we’re flagging it because the stock’s 11-week basing pattern looks sound and OLED is reporting earnings on February 25. If the reaction is positive, the stock could be in great shape to help lead the next sustained market advance.
Sell Ideas
Our lone sell this week is Ulta Beauty (ULTA 149), which suffered some abnormal weakness during the market’s downdraft—it wasn’t pretty, but it was acceptable given what was going on in the broad market. However, this week, the stock fell further after a couple of reports (including one from a short-selling firm) saying traffic to its stores is slowing. We think it’s best to sell and move on.
And we’ve adjusted and added some new stops to our list:
Agnico Eagle Mines (AEM 35) near 30
Burlington Stores (BURL 54) near 48
Cree (CREE 30) near 27.5
Diamondback Energy (FANG 69) near 64
Edwards Lifesciences (EW 86) near 78
Five Below (FIVE 37) near 32.5
National Storage (NSA 17) near 15.5
Rovi Corp. (ROVI 22) near 17
Seaspan (SSW 16) near 14.5
SolarEdge (SEDG 25) near 23
Take-Two Interactive (TTWO 34) near 32
TAL Education (XRS 50) near 45
The Children’s Place (PLCE 65) near 60
As always, don’t hesitate to email me (mike@cabot.net) with any questions or comments on these or other Top Ten stocks.