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Growth Investor
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April 5, 2022

The market (and especially growth stocks) took a good-sized hit today—our Cabot Tides remain positive, but as we wrote in last week’s update, we’re still seeing lots of selling on strength, leading to many air pockets among individual stocks.

WHAT TO DO NOW: The market (and especially growth stocks) took a good-sized hit today—our Cabot Tides remain positive, but as we wrote in last week’s update, we’re still seeing lots of selling on strength, leading to many air pockets among individual stocks. We still see more good than bad out there, especially with the overall market, but we want to go slow until we see more things decisively move higher. In the Model Portfolio, most names act OK, but a couple do not—tonight, we’re going to cut our loss in our half position in Globalfoundries (GFS), which is acting abnormally, and go to Hold on Dutch Bros (BROS). Our cash position is now around 50%.

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Stocks sold off from the get-go today and kept losing ground all day. When the closing bell rang, the Dow was off 281 points while the Nasdaq sank 328 points (2.3%)

Our Cabot Tides green light is still in effect, and when combined with the positive divergence in new lows throughout February and March and the Four-Day Frenzy signal in the middle of last month, we think the odds favor that the market can work its way higher from here—possibly much higher when looking at the months down the road.

However, there’s no question there remain lots of potholes and crosscurrents out there, which is one reason why, while buying, we took half-sized stakes and kept a decent amount of cash on the sideline. The biggest worry, near term, that we continue to see is selling on strength, with few stocks hitting new highs and nearly anything that approaches resistance getting smacked lower.

We don’t necessarily see this as a harbinger of doom, as many rallies can start jaggedly before kicking into gear. But it does tell us that big investors remain hesitant to get overly aggressive—which in turn tells us to go slow, hold a good chunk of cash and wait for better action before putting much more money to work.

In fact, today, we’re pruning our weakest name: Globalfoundries (GFS) was probably the best-looking growth-oriented stock when the market turned up, but it (and many chip stocks) have since collapsed. We’re selling our half-sized stake here. SELL

We’re also going to place Dutch Bros. (BROS) on Hold—the action there isn’t nearly as bad as GFS, but the stock is now down to key levels after being rejected on a good-looking breakout attempt last week. HOLD

We’ll have a full update in Thursday’s issue—don’t hesitate to email me directly at mike@cabotwealth.com with any questions.