Strong Action in Individual Stocks Starts to Feel a Bit Frothy

 | Sep 18, 2017 | 10:53 AM EDT
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A week ago the S&P 500 broke to a new high when neither North Korea nor Hurricane Irma proved as bad as warranted. The market did a nice job of consolidating these gains and today we are seeing an extension of the rally to new all-time highs.

Breadth is better than 2 to 1 positive and there are more than 500 stocks hitting new 12-month highs. Action in many individual stocks is superb, but it is so strong that it is starting to feel a bit frothy.

I'm not a fan of trying to predict when momentum will slow, but I do like to take some partial profits when it is as strong as it this morning. A few things I've cut back are Ultra Clean Holdings Inc. (UCTT) , Bellicum Pharmaceuticals Inc. (BLCM) , Tabula Rasa Healthcare Inc. (TRHC) , Halozyme Therapeutics Inc. (HALO) , Square Inc. (SQ) and Winnebago Industries Inc. (WGO) .

The dilemma here is that it is much easier to lock in some gains than it is to put more cash to work and ride the momentum. While it may seem a bit overheated, the market is at the stage where there can be some very good gains as underinvested bulls panic.

A few names I'm watching to build include Himax Technologie Inc. (HIMX) , Amicus Therapeutics Inc. (FOLD) and Jupai Holdings Ltd. (JP) .

I try to avoid the siren song of predicting market tops, but when the action is this strong discipline requires locking in some good-size gains. That doesn't mean a bearish bias, but protecting outsize profits is how you keep your accounts at all-time highs.

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