It’s been a bit rough for the market lately. Given the prior prolonged runs in many of them, my guess is that many of these stocks are going to need time before starting their next upmoves. However, there have been a few growing positive stock market trends emerge.
Trend #1: First is the fact that the major indexes, unlike so many of the initial growth leaders of this rally, have (so far) held key support near their 50-day lines. That’s key for my intermediate-term trend model (called the Cabot Tides), which has remained positive. (Yes, that can always change, but I never anticipate these things—if it’s positive, you have to assume it will stay positive, even if it’s close.) The fact that buyers stepped up where they were “supposed” to is a good sign.
Trend #2: The second positive is something we’ve seen numerous times in recent years, and it involves investor sentiment. While investors can get a bit giddy at times during advances, sentiment quickly backs off and gets fairly negative within a couple of weeks. This is what we’re seeing in the market, and granted, sentiment is a secondary indicator, but it’s good to see so many investors hit eject after recent declines.
Trend #3: The third positive stock market trend is the most encouraging—while the initial, extended leaders still look ragged, with many unable to get off their knees, money has begun to flow into other stocks. And I’m not just talking about rotation into cyclical names (although there is some of that going on)—I’m seeing a decent number of growth stocks either come back to life after corrections or set up after resting for two or three months following their off-the-bottom moves this spring.
Three Stocks to Look at for the Rebound
#1: Seattle Genetics (SGEN)
For coming back to life, I’m intrigued by biotech stocks, which are getting a boost. One of the big news items recently was Merck inking two collaborations with Seattle Genetics (SGEN), which we’ve viewed as an emerging blue chip in the oncology space. (Merck also took a $1 billion positive in SGEN, a solid vote of confidence.) The stock was a leader earlier this year but stalled out with the biotech group, but it flashed a major volume clue on the Merck news and is approaching its old high.
#2. Five Below (FIVE)
Another example of a name that’s been out of favor for even longer is Five Below (FIVE), the dollar store for teens and pre-teens that sported rapid, reliable growth for years before (a) the trade war and then, just as that was being ironed out, (b) the shut-in associated with the virus. But after a big comeback, shares tightened up for 11 weeks and then broke out after the recent quarterly report showed that the growth story is back on track.
#3. Beyond Meat (BYND)
And then there are names that have a great longer-term setup and have been resting for two or three months, building strength while the initial leaders were ripping higher—now they’re in position to lead the market’s next advance.
A good example is Beyond Meat (BYND), the leader in the alternative meat area that, after a big post-IPO droop through March, showed fantastic accumulation through mid-June. There were some virus-related hiccups (foodservice sales fell in Q2), but in-store and direct sales were red hot, and the stock has spent the past few months building a nice cup-shaped base, with volume drying up on the way down, some tightness on the bottom and some volume accumulation as the stock perks up—all good signs.
Of course, if the market has another big leg down like it just had, then all bets are off—such action would likely bring everything back down. But it’s vital to have a watch list of some of these new potential leaders should the recent weakness be more of a shakeout than a real change in character.