WHAT TO DO NOW: Growth stocks have taken a beating so far this week as a sharp rotation is underway. Given that the Model Portfolio was 41% cash coming into this week, we’re not craving more cash, but we are making one small move tonight—selling one-third of our position in Pinterest, booking partial profits—and keeping some relatively tight stops on a couple of others. Details below.
The wild market environment has continued into this week—we were down sharply two weeks ago, up big last week, but back down during the first day and a half of this week as growth stocks are getting hammered after the positive vaccine news on Monday. As of 1:45 pm today, the Dow is up 80 points but the growth-heavy Nasdaq is down 192 points (1.7%).
The overall bull market remains intact—our Cabot Tides are now positive, and the action last week actually portends good things for the major indexes.
Specifically, last week saw the S&P 500 rise at least 1.5% for three straight days, which has happened just nine other times since 1970, and it’s proven to be a good longer-term signal—the S&P rallied by as much as 14% six months later and 22% a year later. Granted, some of those did lead to some nasty retrenchments, so we wouldn’t say it’s as foolproof as our other blastoff indicators (like the 90% and 2-to-1 measures), but it’s confirmation the bull market is intact.
However, for the most part we own leading growth stocks, and the action so far this week has been brutal. The question is whether this is another one-week type of sharp rotation, or whether the vaccine news will produce a sustained rotation into other areas.
Instead of guessing, you should follow the plan and manage your portfolio. If you happen to be heavily invested, it’s prudent to raise some cash as most names act abnormally.
In the Model Portfolio, however, we came into this week with 41% in cash, so while we’re feeling the pain, we’re already relatively cautious and aren’t necessarily craving cash. Today, we’re going to make one small move, taking partial profits in Pinterest (PINS), selling one-third of our shares and holding the rest for what we still believe can be a solid longer-term upmove. That will leave us with around 45% on the sideline.
Quick update on all our stocks:
Datadog (DDOG): Sagging back toward its prior lows. We have a loss limit in the upper 80s, but the firm will report earnings tonight. If you don’t want to risk it, you could trim here, but we’ll just follow the plan and hold above our mental stop.
Five Below (FIVE): Up this week as “non-pandemic” stocks rally. Looks fine, though if you want to buy, look for dips.
Novocure (NVCR): Getting hit today but the overall chart and story are intact. We’ll stay on Buy a Half rating.
Pinterest (PINS): Bigger picture, we still think PINS acts relatively normally, but we have a good-sized position and a decent profit, and even after this drop, the stock is still somewhat extended to the upside (bounced off its 25-day line today). We’ll take partial profits, selling one-third of our shares, with the idea of holding the rest through this correction.
ProShares Ultra S&P 500 Fund (SSO): Still getting tossed around, but Tides are now positive and, as written above, last week’s action portends good things. We’ll stay on Buy.
Roku (ROKU): Looked ready to get going after a great quarterly report late last week. Plus, fundamentally, we doubt that perception over the pandemic’s end will hurt this company much; the trend toward cutting the cord has been very strong for years. We have a mental stop in the mid 190s—below that and we’ll likely take our profit. Right here, though, we’re holding on.
Twilio (TWLO): An ill-timed share offering late last week (from shareholders—no proceeds went to TWLO) has led to some sloppy performance, dragging the stock back into its consolidation from this summer. Longer-term, we still think TWLO is a winner, but it needs to steady itself for a bit before that happens.
As always, we’ll have further bulletins as need be going forward. Don’t hesitate to email (mike@cabotwealth.com) me any questions you have in the meantime.