The market is responding well to this morning’s jobs report, with the S&P 500 trading near its June highs and just a percent or so below all-time highs. Other indexes aren’t as strong as the S&P, but the overall tenor of the market remains encouraging.
Looking at the bigger picture, the fact that the market was able to shake off Brexit and extend its gains in recent days strikes us as a big positive. Simply put, the sellers haven’t had the power to drive the major indexes or broad market lower for more than few days despite a barrage of worrisome news and lots of uncertainties.
All of this is good to see and will probably prompt us to nudge our Market Monitor up another notch on Monday.
However, the market is still dealing with the same issues we’ve written about for months: An inability (at least thus far) to get through overhead resistance and a lack of growth-oriented stocks hitting new highs.
That could change in the days or weeks ahead (this morning we are seeing the number of new highs on the Nasdaq expand nicely, and it seems to be mostly growth-y stocks, not REITs and utilities), but until it does, the market remains vulnerable to more choppy action or sharp selloffs. Thus, we think it’s best to keep some cash on the sideline (say, 30% to 40% depending on how you run your portfolio) and pick your spots with new buying, trying to get in on dips or on super-powerful breakouts.
Lastly, don’t forget that earnings season is set to get underway in another week or two. So make sure you have a game plan for how you want to handle your stocks—both winners and losers—ahead of time.
Buy Ideas
Becton Dickinson (BDX 175) isn’t going to double in a month, but after a good run through mid-May, the stock effectively went sideways for a month, with a big Brexit shakeout just below its 50-day line. Since then, BDX has glided higher every day, a sign the sellers have been worn out. We’re OK buying some here with a stop near 165. Earnings are out on August 4.
We recommended Copart (CPRT 50) right before the Brexit dip, and CPRT did get hit during that time. But it held its 50-day line and snapped right back to its prior consolidation zone. If you don’t own any, you could buy a little around here with a stop near 46.5. A decisive push above 51 would be encouraging.
Gigamon (GIMO 40)
is a fast-moving name that’s off to a great start for us—the stock surged back from a test of its 25-day line post-Brexit, lifting to new highs yesterday. It’s wild and wooly, but keep an eye out for a dip below 38; that would look buyable, with a loose stop near 33.5. Earnings are likely out late this month.
L-3 Communications (LLL 149) broke out from a 14-month base in April and enjoyed a healthy, persistent advance. Then came the Brexit shakeout to the 50-day line, its first test of the line during its upmove. Since then, the stock has powered back to new highs. LLL looks like a winning conservative growth stock; it’s buyable around here with a stop near 140. Earnings are likely out late this month.
NuVasive (NUVA 61)
has handled itself impressively in recent weeks—it’s not just strong (it eked out to new price highs earlier this week), but calm and collected as well (its Brexit pullback was modest and the stock held its 25-day line). If you don’t own any, a small buy here with a stop near 56 makes sense. Earnings are likely out in late July or early August.
Ultimate Software (ULTI 216)
was ready to get going pre-Brexit, then got yanked lower with everything else for two days. But the sellers vanished as the stock pushed its way to multi-month highs (and back to resistance at 216 from last November). We think dips to 210 or 211 would be tempting, with a stop near 200. Earnings are out July 26.
Veeva Systems (VEEV 37) handled itself very well last month during the market’s various wiggles, giving up just a fraction of its post-earnings advance. And now it’s bolted to new high ground on a nice pickup in volume. It’s a bit extended here, but you could buy a little with a loose stop near 32, or look for a dip of a point or so to get in. Earnings aren’t out for more than a month.
Sell Ideas
Given the strong snapback, we’re going to prune a couple of stocks that have bounced only meekly from their Brexit-induced declines. Cornerstone OnDemand (CSOD 38) and Jacobs Engineering (JEC 51) aren’t falling apart, but given their action lately, we think there are better stocks to own. Both are sells.
Also, don’t forget to book some partial profits if you have good profits. Two examples today: Silicon Motion (SIMO 52), which has soared to new highs after a bullish revenue pre-announcement this week, and Weibo (WB 31) if you bought shares a few weeks ago. Consider selling one-third or so of your holdings and trailing a loose stop for the rest, aiming to ride a big, longer-term trend if it develops.
Here’s our latest list of stops:
Agnico Eagle Mines (AEM 55) near 48
AMN Healthcare (AHS 43) near 38
Barrick Gold (ABX 22) near 19
Boardwalk Pipeline (BWP 17) near 16.5
Continental Resources (CLR 43) near 39.5
Credicorp (BAP 155) near 142
CyrusOne (CONE 55) near 50.5
Haliburton (HAL 45) near 42
HD Supply (HDS 36) near 33
Masimo (MASI 52) near 49
Newmont Mining (NEM 41) near 35.5
Nvidia (NVDA 51) near 44
Oneok Partners (OKS 41) near 37.5
Parsley Energy (PE 27) near 25
Penumbra (PEN 61) near 56
RSP Permian (RSPP 34) near 32.5
Sanmina (SANM 28) near 26
Silver Wheaton (SLW 25) near 21.5
Texas Roadhouse (TXRH 46) near 43.5
VCA Inc. (WOOF 68) near 64
Weibo (WB 31) near 26.5
As always, don’t hesitate to email me (mike@cabot.net) with any questions or comments on these or other Top Ten stocks.