IBD Deputy Markets Editor David Saito-Chung joined the “Investing with IBD” podcast this week to analyze the rise in market volatility. He also discussed sell rules to protect profits in times of market pullbacks. Plus, we take a look at three IBD Leaderboard stocks: Adobe (ADBE), JD.com (JD) and SailPoint Technologies (SAIL). JD stock and SAIL stock have held up well under pressure, but Adobe stock’s cup-with-handle base failed after Wednesday’s sell-off.
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Stocks Eye Rebound After Rout; Adobe Stock Tests Recent Lows
The stock market today saw a rebound from Wednesday’s sharp sell-off. Fears over the rise of new coronavirus cases and the upcoming election have contributed to the pullback over the last few weeks. A mixed earnings season also has added more volatility to a market under pressure.
The Nasdaq composite rose more than 2% Thursday after gapping down 3.7% the day before. The sharp drop sent the index well below its 50-day moving average, a key level of support.
Likewise, S&P 500 and Dow Jones Industrial Average notched solid gains Thursday after dropping more than 3% in the prior session.
“Fear has come back into the market,” Saito-Chung said of the increasing market volatility. “And you can clearly see that the 50-day moving average is no longer offering a floor of support right now.”
Saito-Chung added that investors should stay nimble in the current market and have an exit plan ready to minimize losses.
A number of tech names also took hits in Wednesday’s sell-off. Adobe stock, which was forming a cup-with-handle base, saw that base break down as it dropped 4.5%. Microsoft (MSFT) dropped 5% after earnings. FAANG stocks Apple (AAPL), Facebook (FB), Google parent Alphabet (GOOG) and Amazon (AMZN) all are reporting earnings Thursday night.
Sell Rules For A Market Under Pressure
In addition to analyzing the current market, Saito-Chung reviewed key sell rules for stocks under pressure. He discussed IBD founder William O’Neil’s philosophy of limiting losses to protect the money you have. One simple rule of his CAN SLIM investing system is to always sell a stock if it falls 7% to 8% below what you paid for it.
“It is truly the golden rule of investing,” Saito-Chung said. “By keeping your losses small — ideally no more than 7% or 8% — any of us can recover from that kind of loss. It’s much more difficult to recover from a 25% loss in a stock.”
Listen to the full episode to hear Saito-Chung discuss sell rules and how to determine changes in the market’s character.
Leaderboard Stocks To Watch
Saito-Chung also weighed in on ways for investors to build their watchlists and gather stock ideas from IBD’s news coverage and stock lists. He analyzed three Leaderboard stocks to watch: Adobe, JD and SailPoint.
Adobe stock formed a cup-with-handle base with a 519.70 buy point by mid-October. But the software company’s base failed to materialize a breakout. Shares are now well below that buy point, and the handle is no longer proper. Adobe stock is testing recent lows in September around the 450 level.
Though the cup-with-handle base didn’t pan out, Saito-Chung says Adobe stock is still worth watching as it might form another base.
“The silver lining here is that what was a budding cup-with-handle pattern – one of the most important types of patterns you’re looking for as a growth investor – may actually turn into another bullish pattern, which is called the double bottom,” Saito-Chung said.
Chinese e-commerce stock JD.com is holding up extremely well under market pressure. JD stock currently has a cup-with-handle base, and it’s trading about 2% below the buy point of 85.49. JD’s base also is forming well above its 50-day moving average. Shares have traded above that key support level since March.
Another bullish sign is the relative strength line for JD stock. That line, which measures price performance vs. the S&P 500, hit new highs this week.
“That is unusual strength ahead of a breakout,” Saito-Chung said. “You really want to pick the leader and not the laggard. And I’m really impressed with the way JD is acting.”
SailPoint stock has skyrocketed 295% since hitting a March low of 11.61 in the coronavirus stock market crash. Shares have respected the 50-day moving average along its run. The computer software security company also has maintained a strong relative strength score.
SAIL stock gapped up more than 15% after earnings on Oct. 1 and has held most of the gains since that pop, though it’s now trading below its 21-day line.
“We just like how right now there is a four-weeks-tight entry point,” Saito-Chung said of SAIL stock. SailPoint is scheduled to report earnings next week.
Interested In Adobe Stock?
If you’re looking for the next top stocks primed to make big moves, check out IBD’s Stock Lists page. To get IBD’s real-time assessment of leading names like Adobe stock, check out IBD’s Stock Checkup page.
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