WHAT TO DO NOW: Remain cautious, as the selling pressures spread. There are still positive divergences under the surface, so we wouldn’t be surprised if the past few days of intense selling leads to at least a near-term bounce, but with the major evidence still negative, we remain cautious. We came into today with around 60% in cash, so we’re not craving more, but given the action, we are doing a little selling today—we’re going to sell one-third of our remaining stake in Devon Energy (DVN) to respect the weakness, leaving us with around 64% on the sideline. Details below.
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The market’s decline in April was ugly but under control, but the end of last week and today have seen bigger air pockets emerge—not only have the major indexes fallen sharply, but other strong areas (like commodities) and safe havens (consumer staples) have come under pressure. As of noon ET today, the Dow is down another 430 points and the Nasdaq is down 107 points.
Today, interestingly, we’re still seeing many secondary positives—even as the major indexes came pretty close to tagging their January-March lows today, the number of stocks hitting new lows looks to be far smaller, while other breadth measures also show fewer stocks participating on the downside. Throw in the terrible sentiment (our Real Money Index is now down to its lowest level since late 2020) and the fact that even the resilient names are getting nailed and the circumstances are there for a bounce at least.
But as we wrote last week, these secondary measures are nice, but in and of themselves they’re not enough to change much—all of our trend-following measures (Cabot Tides, Growth Tides, Cabot Trend Lines) remain negative, and until that changes and some growth stocks kick into gear, it’s best to remain cautious.
In the Model Portfolio, we have a touch over 60% in cash, so we’re not eager to raise more cash, but we’re also not going to just hold and hope. Today, we’re going to respect the selloff in Devon Energy (DVN) and other oil stocks and sell one-third of our remaining position; we had already sold half of our initial stake and while we don’t think the big-picture move is over, the recent action is intermediate-term abnormal.
That will leave us with around 64% in cash. We’re OK holding the rest of what we own right now, but we could trim further if the selling continues.
We’ll have a full update on Thursday (April 28)—don’t hesitate to email me directly at mike@cabotwealth.com with any questions.