WHAT TO DO NOW: The market’s rally continues to take on water, and while it’s not a wipeout, many of our intermediate-term indicators are back on the fence. Happily, we’re still seeing good action from many emerging and potential leading stocks, including a few we own, so we think the market remains in sort of an in-between phase, but we are taking some action today—in an unusual about-face, we’re going to sell our entire position in ProShares Ultra S&P 500 Fund (SSO) and hold the cash for now, while looking to redeploy into resilient names should the market stabilize. Our cash position will now be around 67%.
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The market opened higher this morning but again quickly ran into selling pressures—as of 10:30 a.m., the Dow is off 295 points and the Nasdaq is down 149 points.
The market’s recent weakness has continued since our issue last week, with Friday’s Federal Reserve speech causing a wave of selling that has continued into this week.
As for our indicators, it hasn’t been a wipeout, but most things are back on the fence: Our Cabot Tides are still positive, but most major indexes and growth funds are now testing their 50-day lines; our Two-Second Indicator isn’t blowing up, but is seeing consistent 40-plus; and our Aggression Index is also testing key levels and is back in the middle of its three-month range. Plus, of course, our long-term Cabot Trend Lines remain bearish.
On the plus side, we continue to find it encouraging that most emerging and potential leading stocks are holding up fairly well even when the major indexes have been hit hard.
All in all, we still view the market as being in something of an in-between stage, so our overall goal is to (a) go slow and hold plenty of cash, (b) tip-toe around any land mines and (c) ideally position ourselves in some fresh leaders for the next bull move.
Today’s bulletin is about our stake in ProShares Ultra S&P 500 Fund (SSO), which we added to after the mini-blastoff signal written about last week. But that signal looks on the verge of failing, and frankly, we’re seeing much more weakness from the major indexes than individual stocks.
So we’re going to do an unusual about-face here—we’re going to sell our entire position in SSO and hold the cash. In the near-term, we’ll look to redeploy the proceeds in some fresh leaders if the market can find its footing; longer-term, we may revisit SSO or another leveraged long fund if/when the next bull phase truly kicks into gear. But right here, the reversal of the recent rally, our indicators and the peppier action among potential leaders all point toward selling. SELL
Don’t hesitate to email me directly at mike@cabotwealth.com with any questions. We’ll have our regularly scheduled update on Thursday (September 1) with further thoughts and updates on all of our positions.