Amid a Lack of Market Leadership, I’m Eyeing These 2 Stocks
I’m adding to this oil play and biopharma stock as market sees some strange and broad-but-shallow action Tuesday.
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We have a strange brew of market action today. This morning I highlighted how most of the market has been struggling while Magnificent 7 stocks break out and the Nasdaq 100 (QQQ) leads. Today the action flipped back to rotation.
The S&P 500 (SPY) and the Magnificent Seven (MAGS) are flat, but breadth is running much better at 65% positive and the Russell 2000 (IWM) is leading with a gain of 1%. The chips dipped early but found bids. So the exact groups that lagged badly on Monday are the ones leading today, and the megacaps that drove Monday’s record are resting.
Better Breadth, but Not Much Behind It
The improvement in breadth is a positive after what I wrote this morning about how narrow Monday was. When the small caps lead and two-thirds of stocks are green, that is a healthier look than a record close carried by eight names.
But I don’t want to pretend this action can be trusted. Despite the small cap strength, my scans of stocks making big moves are short. I count only about 20 names up 10% or more, and there is no dominant speculative theme driving them. In a market that was actually turning, a day with the Russell up 1% and breadth at 65% would usually come with a longer list of standout movers and a group or two catching real momentum. Today it is broad but shallow. A lot of stocks are up a little, and few are up a lot.
That is the distinction that matters when you are looking for some entries. Broad and shallow tells you the selling pressure eased and buyers stepped in across the board, which is fine as far as it goes. It does not tell you that leadership is forming. Leadership shows up as a cluster of stocks making strong moves together, and that is what is still missing.
What This Adds Up To
Put the two days together and you get a market that cannot decide what it wants to lead. Monday was mega-caps and a narrow index record. Today is small caps and better breadth with no standouts. That back-and-forth is the rotational action I have been describing all year, and it is why the indexes keep giving a cleaner picture than the market deserves.
It is not a bad thing. Rotation means money is staying in the market rather than leaving, and a day where the laggards catch a bid is better than another narrow melt-up. But rotation without leadership is churn, and churn is what you get in a market that is working off an oversold condition rather than starting a new trend.
Two I Am Adding To
I did make a couple of moves today, both adds to existing positions rather than new buys.
The first is National Energy Services Reunited (NESR), which I have mentioned several times. It provides oilfield services and construction across the Middle East, and it is one of my favorite plays. I have been building the position incrementally, and today’s weakness in the broad market gave me a chance to add on a name that pulled back but keeps developing well regardless of what the indexes do.
The second is a bottom fish in biotechnology, BridgeBio Pharma (BBIO). It has been under heavy pressure and it looks like it may finally have found some support around $66. That is the kind of setup I am willing to start into carefully, a beaten-down name showing the first sign of a floor. The analyst coverage supports the case. According to TipRanks, the 14 best-performing Wall Street analysts covering it have an average 12-month target of $108.92, with a high of $130 and a low of $94. Against the recent price near $68, the average target implies more than 60% upside.
I am sizing the BBIO add small, because a stock that has been falling this hard has not proven the support holds. If $66 gives way, I want room to add lower rather than a full position I am stuck defending. This is the incremental approach I have written about, starting small on a name that is trying to bottom and building only as it confirms.
Game Plan
The better breadth today is encouraging and I am watching it, but I am not going to read a single rotational session as the all-clear any more than I read Monday’s narrow record that way.
What I want is the thing neither day has given me: a group of quality names making strong moves and holding them, the new-high list expanding, real leadership emerging. Until that shows up, I am staying selective, keeping cash ready, and letting the individual charts on my list tell me when it is time to press. A broad but shallow up day is a step in the right direction. It is not the signal I want.
At the time of publication, DePorre was long NESR, BBIO.
