Stop Waiting For A Dip — Fundstrat’s Mark Newton On Stocks To Buy Now

Let's kick off the week with some technical perspective. Mark Newton is Global Head of Technical Strategy at Fundstrat and joins us now. Mark, great to have you at the desk. Thanks so much for being here. Great to be. Here. All right. So stocks are mixed to slightly lower to kick off the week. We saw the S&P 500 breaking past 7800 last week though a little bit below that right now. Do the charts say that this rally has more room to run. Or should investors be careful about chasing at these levels. Well, look, a lot of it depends on one's time frame and risk tolerance. I think we've had a really good run since the latter part of July. To lift, you know, almost 15, 20% or so in the matter of the last month and a half. I think it is very, very good. At the same time, I sense that we are going to need to consolidate, this move. It's going to be difficult just to run straight up above 8000 right away. My year end target technically is 8000, but I think it's going to prove to be a choppy couple months until the midterm election, which is going to be good for bulls and bears alike. It just won't be a straight shot. That's the kind of year this entire year has played out to be. It's all been rotation. It hasn't been one sector leading. You know, we saw energy initially the first few months of the year that it moved to technology. But it's been helpful to have sectors like financials health care discretionary all kick into gear to really help the market. So despite the fact that many tech stocks were down 20 to 30% since May, the market held up and was simply range bound up until tech reasserted itself. And then we got that breakout again last week. So it is right to be bullish between now and year round. But I don't think it's going to be a straight ride. I want to break all of that down. I want to break down the rotation that you've been seeing, how to prepare for the downside, what to do when we see that downside. But first, how can you tell a healthy market from just a higher market? Yeah, it's a great, great question. I think a lot of it has to do with market breadth. And actually what's moving sort of under the hood, so to speak. Sometimes stocks can go up, but the, the average stock is actually falling even though indices are making new highs. So it's important to really recognize that, you know, a certain percentage of stocks are above their 200 day moving average, so to speak. Or you know that the average stock is participating. And it's not just all being led by the hyperscalers and makes seven. This market actually has been very bullish in that regard. And it's been very constructive to see a multitude of different sectors sort of holding up to sort of buoy the market. So, I think that initially is one thing to say. It's very, very good. You obviously want to look at overbought measures, but those don't necessitate, really reasons why investors would sell. It's really about adhering to longer term trends and keeping an eye on sentiment. When sentiment gets overly optimistic generally, it's a time to, you know, maybe pull in the range a little bit. We're not seeing that right now. Investors are concerned about inflation. About the endgame to the war in the negotiations. There's a lot that are on investors mind. So despite the fact we've had this big rally, there's still a lot of people that have dug in their heels that are simply not participating. So I view that is actually a very healthy sign overall for this year, even though it's been a really tough year. You know, if you have your your grandmother on the couch with Kuku and she might be outperforming you if you're trying to pick stocks, it's just really, really difficult. We don't know in any stage, you know, what's going to move and why. So that's why we use technical analysis. We want to really, you know, understand what's going on with technology, what's going on with financials, what's driving this move, what's driving the move in health care. And so to put it all together, you know the market's resilient. There are some risks in the next couple of months. And we can talk about those. But in general the market's on pretty good footing right now. But to your point some people are digging in their heels and and waiting for a bigger correction as a better entry point. What do you think the strategy is assuming that we're talking longer term investors here, retail investors with someone with fresh cash today, do they just put it to work now? Do they wait for that pullback or the choppiness that we could kind of continue to see? Or do they just gradually invest it? I think gradually investing at this time makes a lot of sense. So everybody's got their own time frame. If your time frame is 2 to 3 years and I it's still a great time to be involved in the market. I think that, normally we do see weakness during this time of bear seasonality and midterm election year. So pulling back into the midterm election usually provides one of the best times of the entire four year cycle to buy dips in the stock market. But in general, I think that, you know, the amount of money that's heading into this, you know, the I spend the amount as being spent on CapEx is just mind boggling. And these companies are making a ton of money. The profit quote has been the highest in about 30 years. So that's normally not a market where you really want to be too concerned. Yet specifically when the bond market is not showing evidence of distress. And we look at, you know, what's happening with, the high yield market and just, you know, we don't sense with the ongoing IPO rush and the buybacks that that that's normally a time to fear. It's generally not up until the time when investors really get speculative. And that's really not what we're seeing right now. What sector or industry has the best looking set up on your screens right now, as we've been seeing this rotation in other areas, but also this re acceleration in tech as well. I would say that's a that's a two part question. In the near term I think energy looks very good tactically. And for investors, crude oil does not seem like it's immediately going to start to turn down as quickly as maybe what the administration needs before the midterm election. So I think that a move to 100, or even 110 can't be ruled out for WTI crude, specifically within the energy sector, most of the refiners still look very attractive. They're very overbought. But we know that with crack spreads as high as they are, refining is is still the best part of energy. So energy had been under pressure after crude peaked in April and pullback. And I sense now that the recent minor breakout we've seen. And when I say breakout I mean equated energy versus equal weighted S&P. I mean that's actually quite attractive energy and materials right now over the next few months are probably my top sectors. But technology if you have a two year perspective, I think tech will come roaring back. And to its credit, we've seen that consolidation happen not all at once, but bit by bit. We saw software late last year into this year. Then we saw the mag seven, the hyperscalers, then we saw semis. Than we saw memory. Those of all slowly but surely started to come back. So you know tech is not expensive fundamentally and technically. You know we're starting to regain our footing. I sense that's very good news for investors. I'll dig into tech in just a second. But going back to energy and materials for just a second, can you give us any specific names that have a good set up from here? Well, a lot of the refiners are very overbought. I still added a stock called Valero, which is one of the best refiners in the world to my optics list, which I run. It's a technical list of longs. And I also like Chevron here specifically because it's gradually starting to come back, both Chevron and Exxon being integrated energy names. When you tend to get market volatility, these cash rich companies tend to outperform. And so this would be, you know, a secondary play in energy completely different company but one that that not only can help you to weather some of that volatility. If and when stocks start to show any type of turbulence over the next couple of months. But, you know, one that I think should push back to new all time highs. So those would be two specifically that I like them that And can the S&P 500 reach 8000 which were pretty close to at this point if oil goes to 100. Yeah. I don't think that's going to happen right away specifically because the market, at least in recent months, has not usually done well when crude has been accelerating higher, which means, you know, the thinking that we can just flip our, you know, snap our fingers and have an immediate deal is really, really difficult. There's a lot of moving pieces here. And so the second part of the equation as to the what causes concern has to do with interest rates. And we can speak about that. But if interest rates on the long end are starting to push higher aggressively along with crude oil, you know, those are things we need to pay attention to that normally can cause, volatility in the market that are non-technical, but they certainly are very important to what this market's been continuing to pay attention to all year long. Another thing that maybe we'll have time to get back to. So many things that I still want to get to. Okay, time for a quick break. 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Everybody's been waiting for the time when they're going to merge with space, and it's just going to prove tricky in the short run. But but I, I think the entire group really makes a lot of sense. Microsoft and many of the software stocks have really started to come back and in a very convincing fashion to me. Not all software, of course, is good, and I would steer clear from those that are hitting new 52 week lows. And even the the adobe's in the service now of the world, and the oracles are not going to be as good as stocks like Palantir, Microsoft, Fortinet, and really anything that has to do with cyber security. And so, you know, Palo Alto Networks and CrowdStrike, they they've moved up, but for good reason. And that's still an area, as you know, this is however you want to it, whatever stage of the Cold War where we find ourselves in. But but in general with the geopolitical uptick, you know, you need to have, these companies that are, you know, honestly involved with cybersecurity. That's just really the new age. This is the world we live in right now. Okay. I was going to ask because Palo Alto Cyber, CrowdStrike, they're both pretty close to the highs, but it sounds like you still think that there there are opportunity. I can tell you one thing from having done technical analysis for 30 years, trying to buy dips is extraordinarily difficult and usually does not work. Investors would be better suited to actually buy high and so higher and sell low cover, lower things that are at or near a new all time high territory, historically have been some of the best times to get into the stock market. And sometimes when that horse runs out of the barn, you got to go chase it because it's not coming back. Is there one that's near highs that you wouldn't chase here? Wow. Yeah. That's a that's a great question. You know, a lot of that depends on one's time frame. Things can get very overbought, but still, you know, I think some of the banking space have gotten very overdone. Most of tech has already undergone a pretty solid correction. And it's come back. I had a Delta. My list certainly is very overbought. But it's a wonderful company and stock acts really, really well. So I you know, I think a diversified diversified strategy makes sense across technology. And that's really what investors should should consider. Not not just putting everything within memory or even everything within technology. Look it's very difficult. Most people that have ETFs already own a healthy slug of tech. And so when you're also trying to buy stocks on the side, whether it be Apple or putting money in memory, you know, these things are have an extraordinary amount of volatility. So it's right to diversify across banks, across health care, across industrials. Health care is a sector where, you know, drug pricing and the ACA subsidy withdrawal, you know, cause many of these, health care companies to really suffer for about three years. And now we're seeing a big resurgence in health care. Health care as a sector has just exceeded trends going back since 2023 relative to the S&P. So biotechnology, pharmaceutical stocks, HMOs all look phenomenal here. And really the medtech unfortunately, is going to be a laggard at a time when interest rates are rising. And so that's an area to really you still have to be selective in most sectors. But health care to me takes on a little bit more appeal these days. And maybe it did a couple of years ago. What are some of the health care names on your uptick list? Amgen is one I like a lot. I think it's a phenomenal, company. You know, I hope to I can't, what some of the stocks, like Lilly, I hope to buy, in the near future. But really, it's Merck right now, and and an Amgen. So one pharmaceutical stock and one really biotechnology stock that I find to be, you know, really, really in good shape. How late is too late to chase, though? Is there a point where a stock can look technically strong but is no longer attractive? Again, that has to do with one's time frame. What would make me concerned is if it really starts to weaken materially and break, trends start to roll over on heavy volume, as long as the volume supportive and trends are intact, and even though something gets a bit overbought, it's still right to position and those. And so the things that I look at that are warning signs or you know, will momentum even though it might be overbought stops going higher. The stock pushes higher but momentum doesn't. In other words we call that negative momentum divergence. And that's normally a warning sign. But it's all about trends and about volume. And and until you see evidence that the stock is stopping going higher and anybody, you know, can can pull up charts, and it's a very easy process to be able to incorporate that. And I would encourage people to do it, if nothing else, for risk management to take the emotion out of the game, because you always, you know, you hear these fundamental targets up or down. I'll tell you a secret that most fundamentally oriented analysts always go to bed unhappy. They're always upset because the markets are either extraordinarily undervalued or extraordinarily overvalued. They think it should be worth $30. And if a stock is at 50, they're not going to chase it. And if it's 15, they're buying. And if it's 15 for a reason, it might go to ten. And so you're always buying things that you hope are going to rebound. And you're never actually chasing the strength. And we know that that momentum has been the number one factor over the last 20 years. We certainly saw that with Palantir. I feel like no analyst is bullish on Palantir for the longest time, and they just weren't raising their price targets, despite the fact that Palantir was rocketing higher. And that was last year. So obviously exciting company. Yeah I'm sure you mentioned memory. We're seeing micron up pretty big today. Names like or I guess memory and storage SanDisk Western Digital still well off the highs though. You know maybe 2,030% off the highs. Too late to chase time to get in. How are you looking at some of those names. That's the risk when when stocks get unfairly punished like this is that when they when they start to lose momentum, and you start to see weekly momentum gauges really start to roll over, it almost becomes a tactical trade where you want to own it short term. But the bigger picture, you really need to let the stocks start to improve a little bit better before you get in. I still sense that most of these stocks will be back at new highs into next year, but the time between now and the midterm election, I think it's still going to be tricky. So momentum turn down. This is going to prove to be similar to software. When it first bottomed out this spring. We saw the initial move off the lows and nobody said, oh software is back. And then it became, you know, two steps forward, one step back. And it really is tricky to try to buy something at the lows and think it goes go. It goes back to the highs. Now, I wrote about memory last week and I said tactically, this is the right time from a tactical trading perspective, you really want to own it. But, you know, I much prefer stocks that are at or near all time highs, but I think, you know, I on better footing. So I, I always want to keep a list of stocks within 5 to 10% of all time highs across all sectors. So I know that's sort of my hitlist. That's right. And that way if things start to go against me then I can get out of them. I'm not a trader per se, but I adhere to very strict discipline with regards to, the process of how. And that way I can sleep at night. I don't have to let a stock go down substantially and hope that it comes back, or try to throw good money after bad, and oftentimes that's usually the wrong philosophy. Okay. So ultimately, as you said at the top, you expect this is a market that will move higher from here by year end with an S&P 508,000 price target. But we could see some choppiness getting there, especially near the midterms. If we do get a pullback, what tells you it's a healthy reset from you know that investors should actually buy versus the start of something bigger. Yeah that's a great question. I think initially I look for really three things to determine. First of all, whether the stock market is getting ready to pullback. And that's really interesting. And the first is the degree of growth is breath getting worse or better. Or they're more stocks going higher or lower. Recently the answer has been higher. We've seen breadth to improve and expand since not only late March but also may. The second is what sentiment like are people to enthusiastic and to speculative. Right now we don't see that either. And the third is are we starting to see defensive strength? Look at the utilities and the consumer staples. And, you know, are these sectors really starting to reengage and start to strengthen? Normally ahead of most corrections you see a flight to quality of flight to safety. We saw that at the beginning of this year. We saw it beginning of last year ahead of the Liberation Day, huge outperformance in staples and utilities, which warned that something was awry, that we could potentially have some type of volatility this year. We don't see really any of those utilities and reads and staples have been honestly heading lower in recent months. Specifically wrote of the S&P. So to answer your first question, you know, if long term trends start to be broken, if we start to see the trend and technology specifically give way that it's going to start to pull back and violate lows, that would be a concern. It really has a lot to do with cycles and with sentiment and with just general technical structure is how I look at the market. And so it's tough to say, you know, all these exogenous events would cause me concern. I think I would also take a cue from the bond market, unless we start to see real widening out of spreads. You know, what's happening day to day in stocks really doesn't concern me. I mean, the bond markets on very good footing right now. Do you have a line in the sand to the downside, though? Does the S&P 500 reach a level that you say, okay, the bullish setup is no longer working. Sure. I think that right near 7800 you want to look probably right near almost 70. You know it's almost to get under 7300 before you'd say. Normally I would look at not only uptrend from the most recent swing low, but also just monthly lows. And if you have a, you know, the low that happened in late July, if that is undercut for the S&P would cause me, you know, concern that this could morph into a larger, period of volatility. But but I don't sense that we're there. The big risk for me is that long term interest rates in the US start to gradually creep up and join some of the bond market weakness that we've seen across the globe. So JGB have been higher bond yields UK gilt yields. Now the US being the best house in a bad neighborhood. Finally starting to see some issues of well three three people now have descended for the fed and starting to turn more hawkish increases. Term premiums are being built in now to the bond market. But the long yields are also going up because of growth. Investors want to hear from Warsh. They and I don't think they're going to hear that Jackson Hole next week. So it's more about how quickly does the market, start to sense that either inflation or growth is becoming too much and long yields really start to rip higher. That's a big risk for investors, I think over the next two months that that, along with crude going up, are probably my two warning signs that could cause some volatility at a time when the technicals honestly don't suggest it right now, neither do the earnings or the economy. And the economic data has been splendid. We've seen not only last week retail sales missing has been very good for in terms of the bond market. But we saw obviously CPI and the core PCE have come in much weaker than expected, which have actually been very encouraging that the fed is actually on the right path. They don't need to hike rates and everybody's been job owning the fed. And in the meantime the Atlanta Fed GDP number came in really, really good. So it doesn't seem to be an issue with regards to jobs and the GDP. We you know, there is a K shaped economy. Of course, those that don't own four one KS and don't own real estate, you know, cannot participate. And it's right to mention that that obviously is always a problem and it's very difficult to address. But the bigger picture of the economy seems to be clicking on a number of different fronts. And I'm really encouraged about that coupled with the earnings picture. Okay. And just finally and just quickly, because we have to get to our rapid fire round, what would make you more bullish? What would make you lift your price target above 8000? Well, I think that if, technology were to strengthen sufficiently that many of the memory stocks were to get at or near prior highs, and, we see other areas of the market really start to come alive. Like many of the consumer areas of the market, consumer discretionary have been under a lot of stress over the summer. We did not see the kind of movement you wanted to add in the casino names and some of the the booking agency stocks and the, you know, the, homebuilders, home data usually can drive recessions and we've seen that usually hold up. But mortgage rates are now at 6.7% and rising. You know, I used to have a mortgage at 3%. Now mortgages are double that. And so that's an obvious issue for many people as to what is going to happen with regards to the housing market. You know, I can rates keep creeping up eventually when the supply start to rally, where home prices are going to start to pull back. Look, there's a lot of answers to that question. It's not an easy one. This is going to happen. But I sense that, you know, my own cycles say it's going to be choppy until the mid term. You want to own stocks after the midterm election. You know, we probably will see hopefully an end to some of the partizanship. And you can start to see all stocks, all sectors move on on equal footing pushing higher. And at that time I think it's going to be good. I think the S&P can push up over the next couple of years. All right. I will check in with you. If we start to see more strength in the consumer to see if you change your price target before we let go, we like to play a rapid fire round of this or that. Quick questions quick answers. Try not to hedge or you ready. All right. Here we go. By strength or by weakness. Always by strength. S&P 500 or Nasdaq 100 through year end. Nasdaq 100. S&P 509,012 months. Realistic or fantasy? Wow. I think that's realistic. So does Eric where they just came out with an S&P 9000 target, big tech or the broader market. Big tech as of more recently. Yes. Semis or software. I am still of the opinion that semis likely do better than than in software. They've been unduly punished and now they're starting to come back. One must buy semi here. Oh. That would take some that's a tricky question, but I have to go with with honestly TSM, you know, Taiwan Semi is the standout leader across the group, I think. Yeah. One must buy software here. That's not Palantir. I have to say Microsoft, and I buy dips in Palo Alto. It's a longer answer. And you want. But I'll buy Microsoft. I'll take it. Industrials are energy. Near term energy intermediate term industrials. Gold or bitcoin. Bitcoin. Over the next two years, gold is going to prove tricky with rates starting to press up. By the breakout. Or wait for the retest. Always by the breakout. Price or momentum. I mean, momentum is really what you want to follow. So momentum three stocks on your uptick list that we didn't cover already. Wow. Core weave making a decent comeback. Something to consider. Let's see. Doesn't have to be tech. Yeah, no, I've tried to to get out of, Let's see. It should be an easier process. I'd have to get back to you on that. I don't have a rapid fire answer for that. What's a name that was on your uptick list that no longer is on there? Julia honestly. And, train technologies, I remove those simply because they've been shaky of late. They aren't acting. Well, Julia is not keeping up with the average biotech. Finish this sentence. The S&P, via the S&P 500 level I'm watching most closely is. Let's see, I would say, I would say, 7850. I don't think we're going to get above that in the short run. The most important signal I'm watching right now is. The most important signal I'm watching is, Oh, the ten year bond yields getting back up above 475. The strongest part of the market that isn't getting enough attention is. Definitely health care. Health care has been strengthening and people aren't paying attention to that. The biggest mistake retail investors make when buying a breakout is. Not having the patience to let it consolidate and sticking with it after breakouts. Yeah. The next surprise for investors could be. The fed being on hold throughout the year and not hiking rates at all. If you only remember one thing from this interview, it should be that. You have to use technical analysis at all times in your investment process to take the emotion of the process and stay disciplined for your approach, and not continually buy dips. Mark Newton, thank you so much for that. Preciate it. Yeah, that's Mark Newton, Global Head of Technical Strategy at Fundstrat. If you enjoyed this street talk, check out our full interview with Christopher Davis where he explains why the best time to invest is today and shares the stocks he's buying, even with the market at this level.