Our Market Monitor has crept up of late, but is still at a level six (out of 10). The action last week, as investors returned from the long weekend, definitely boosted the odds that more base-building is needed. That said, DoorDash Inc. (DASH) could be worth playing, notes Mike Cintolo, editor of Cabot Top Ten Trader.
If you’re looking for reasons for the selling, it seems like renewed fears of a possible recession or major slowdown are picking up. The 10-year Treasury was down about 22 basis points last week – though these sorts of worries/hopes wax and wane.
What matters more is the evidence, which took a hit. For the intermediate-term, the indices that had perked up near their highs are back in neutral mode, while the lagging growth areas (including the Nasdaq and other growth funds) breached some support. Defensive areas, by the way, continue to outperform, with consumer staples flat last week.
DoorDash Inc. (DASH)
To be fair, while everything sagged, the harshest selling was among the former chip and networking leaders. Many names that showed enticing strength in August (often after earnings) have taken on water, but not many have truly keeled over. Because of that, we advise mostly taking things on a stock-by-stock basis, assuming you never got heavily invested during August.
All told, the next week or two should be vital. We consider this backsliding a “test” of the post-August rally. If the buyers can show up soon, especially when it comes to high relative-strength stocks, this could prove to be a final shakeout that paves the way to higher prices (likely with the help of a supportive Fed later this month).
If the selling continues, though, it’s likely the correction that began in mid-July has more work to do and a re-test of the August lows is in play. For now, we’ll leave our Market Monitor at a “level six” and watch things closely.
Meanwhile, DASH has pulled back modestly and on whisper-quiet volume after its off-the-bottom, earnings-induced rally in the first half of August. You could play it here with a modest stop, or wait for a move above $132/$133.
Recommended Action: Buy DASH.
