We’ve seen plenty of split tapes in our day. But this one is about as divergent as we can remember. Meanwhile, Fabrinet (FN) is off to a solid start since our initial recommendation, and now it’s set up a decent-looking, three-week shelf, observes Mike Cintolo, editor of Cabot Top Ten Trader.

The big-cap Nasdaq was up about 3% through last Thursday, while the S&P 500 was up 1.5%. But outside of a couple of growth measures, the rest of the market was flat (up 0.5% to down).

Interestingly, this action happened despite a nice dip in Treasury yields (~20 basis points) that tagged multi-week lows after a tamer-than-expected inflation report. That initially kicked off some heavy buying, but very quickly the broad market fell back into its trading range and even some strong names saw some selling on strength.

While there was a good amount of news and movement, nothing has really changed with the evidence: The big-cap indexes are trending up. But the intermediate-term trend for the vast majority of the market is neutral. The action among leading stocks and sectors is hit-and-miss, with some acting fine but a few hitting major potholes each week.

Fabrinet (FN)
A graph of a graph showing the growth of a stock market  Description automatically generated

Could this divergence be a sign of a coming top that leads to some damage this summer? Sure, it’s possible, so we wouldn’t rule that out. Right here, we’d say most of the market isn’t “bad,” per se, but is simply in a sloppy trading range. Frankly, a few good days could have a lot of indexes/sectors/stocks moving out to new highs.

As for FN, it has support near the 25-day line. Whether you own some or not, you could consider grabbing a few shares if you see a decisive move above $250 in the days ahead. The company provides outsourced manufacturing services to companies in complex industries that require precision capabilities.

Recommended Action: Buy FN.

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