WHAT TO DO NOW: Remain cautious. The market’s latest selloff has continued this week, with even this morning’s good-looking gap higher disintegrating by day’s end. The brief Cabot Tides buy signal has been erased, and few individual stocks are making any headway. In the Model Portfolio, we think it’s best to cut bait with Dutch Bros. (BROS), which has a story we love, but the failed breakout last month and bearish action since tells us to cut the loss. We’ll now have 55% in cash. Details below.
The market has continued its recent slide this week, with a big down day yesterday and today, after a solid open, steady selling that drove the indexes to another round of losses, with the Dow off 88 points and the Nasdaq off 40.
This dip has been enough to erase the brief Cabot Tides buy signal from a couple of weeks ago, and when combined with the action of individual stocks, it’s clear that, at best, not much money is being made on the long side, and at worst, we’re in the midst of another leg lower.
Bigger picture, we don’t think the latest slide completely erases all of the improved evidence that really began back in February and early March; this dip could easily be part of a longer bottoming process that started in late January, which would make sense given how much damage was done to growth stocks (lots of damage = more time to repair, generally speaking). That’s a good reason to keep an open mind, especially as the news is horrible and predictions of recession and what-not become more popular.
Even so, for the here and now, there’s no doubt the sellers are back in control, with nearly every bounce being sold into. And that means continuing with a cautious stance.
In the Model Portfolio, we came into this week with about 50% in cash, and tonight we’re going to bump that up by selling Dutch Bros. (BROS)—we love the story, but the stock’s failed breakout late last month and bearish action since tells us there are still sellers waiting to unload shares. Maybe we could re-enter BROS down the road if the market and stock shape up, but right now, we think it’s best to cut the reasonable loss on our half-sized position and hold the cash. SELL
That will leave us with around 55% in cash—we’re not craving more from here, but we’re willing to cut back more if the market and individual stocks continue to deteriorate.
We’ll have a full update in tomorrow’s update, which we’re sending a day early due to the Friday holiday—don’t hesitate to email me directly at email@example.com with any questions.