The market started the week off on a good note but looks like it’s going to finish it off on the downside, with the major indexes solidly in the red this morning following some hawkish Fed talk and North Korea’s nuclear test. In fact, the S&P 500 has fallen below its 50-day line today, and is testing the lower-end of its tight, two-month range.
That situation bears watching. Should most indexes (S&P 500, Nasdaq, S&P 400 MidCap, S&P 600 SmallCap and the NYSE Composite) crack their 50-day lines, the intermediate-term trend would shift to neutral (at the very least) or bearish (if the indexes take out the low end of the July/August ranges).
At this point, though, while this morning is painful, nothing has really changed—the big-cap indexes remain range-bound (the S&P has chopped in a 2% range for the past eight weeks!), while some small- and mid-cap indexes (as well as some growth stocks) have been outperforming a bit, hitting new highs earlier this week.
The bottom line is that the short-term trend is mostly sideways; we don’t think many people can argue that point. But the intermediate- and longer-term trends are still pointed up, and other pieces of evidence (outperformance by growth-oriented indexes, a healthy broad market, etc.) point to the next major move being up.
Though it’s important to take things on a stock-by-stock basis. If something trips your loss limit or your stop, be sure to sell it. Holding a little cash probably makes sense, too, at least until the market can resume its uptrend. And being more discerning on the buy side is a good idea—you want to look for low-risk entries.
But we’re also in favor of holding your resilient stocks, giving them a chance to consolidate and, eventually, resume their overall uptrend. Plus, we’re not advising any huge buildup in your cash position; many stocks are still acting just fine.
We could knock down our Market Monitor a notch in Monday’s issue, but the bottom line is that you should remain bullish until the evidence changes.
Buy Ideas
Dexcom (DXCM 95) traded very tightly for all of August and, this week, poked to new highs on decent (not great) volume. Overall, it’s a constructive pattern, and we’re OK with a buy here and a stop around 88.
Electronic Arts (EA 82) isn’t wowing anyone, but it hit new highs in mid-August and again earlier this week before pulling back to its 25-day line. If you don’t own any, you can nibble here with a stop around 78.
Gigamon (GIMO 46) had some volatile action around month’s end, but it’s currently perched near the top of a six-week range. If you don’t own any, you could nibble here with a stop around 43. Or, if you prefer, you can watch it and look to buy on a powerful move above 47.5 in the days or weeks ahead.
Insulet (PODD 43) has consolidated nicely since its huge earnings gap in August. As with GIMO, you could nibble here and use a stop near 39. Or you could wait for a decisive push above 45.5 to take a position.
Trex (TREX 59) has finally pulled back, falling from 64 to 59 in recent days, partly as most housing-related stocks fall on fears of higher rates. Still, the retreat has been tame compared to the prior advance, and we’re OK buying some around here with a stop near the 50-day line (a bit below 55).
Twilio (TWLO 57) lifted off its correction lows and has held up well in recent days. It remains above its 25-day line, and we’ve also seen some decent-volume up days recently. You could nibble here if you want in, but use a loose stop in the 48.5 area; while TWLO has calmed down a bit, remember that it moves around three or four points per day on average.
Sell Ideas
Just a reminder to book partial profits on stocks that have made 15% to 25% moves in just a few weeks. (Tata Motors (TTM 43) is a good example.) Taking some off the table on the way up makes it a lot easier to sit with your remaining shares during periodic corrections in the market or the stock.
As for outright sells, Beacon Roofing (BECN 44), CDK Global (CDK 58), HD Supply (HDS 31), Masco (MAS 34), Physicians Realty (DOC 21) and Pulte Homes (PHM 20) have either tripped their stops or otherwise look vulnerable. All are rated Sell.
Lastly, here’s our updated list of stops:
Acuity Brands (AYI 266) near 264
Boston Scientific (BSX 24) near 23.5
Communications Sales & Leasing (CSAL 31) near 29.5
Copa Holdings (CPA 83) near 75
Ebix (EBIX 58) near 54
Electronic Arts (EA 82) near 78
Inphi (IPHI 40) near 38
Line Corp. (LN 44) near 40.5
Louisiana-Pacific (LPX 20) near 19
Masimo (MASI 59) near 55
Mobileye (MBLY 49) near 45.5
NetEase (NTES 214) near 198
Newfield Exploration (NFX 45) near 43
NuVasive (NUVA 67) near 62.5
Nvidia (NVDA 61) near 56
Penumbra (PEN 71) near 67
Silicon Motion (SIMO 53) near 48.5
Tata Motors (TTM 43) near 38
TransDigm (TDG 285) near 277
Twilio (TWLO 57) near 48.5
VCA Inc. (WOOF 70) near 69
Wright Medical (WMGI 23) near 23
XPO Logistics (XPO 34) near 32
Zendesk (ZEN 30) near 28.5