WHAT TO DO NOW: From a top-down perspective, the market and our trend-following indicators are in fine shape, but we’re now seeing some big-picture yellow flags (tons of speculative activity) and, more important, growth stocks are beginning to look iffy. We’re not selling wholesale, but we do have a few tweaks today: We’re selling one-third of our shares of Five Below (FIVE), one-quarter of our remaining shares of both Roku (ROKU) and Pinterest (PINS) and placing Uber (UBER) on Hold. Our cash position will now be around 27%. Details below
The major indexes continue to make a good show of themselves—most are solidly in the black during the first two days of the week, and our trend-following measures (Cabot Trend Lines and Cabot Tides) remain bullish. Thus, from a top-down perspective, the picture remains bright.
However, we’re beginning to see more yellow flags appear. One of those involves the wild action among a handful of highly-shorted stocks (GameStop is the poster child for this)—the pops in some of these names are generally abnormal and almost always occur in the later stages of an intermediate-term upmove.
However, a little extreme action (up or down) is secondary to us—but the recent sluggishness in growth stocks is not, as many have stalled out for a few weeks and are now coming under pressure. While we won’t say the action has been completely abnormal, we’re seeing more and more air pockets among leading growth titles, with a few names cracking key support.
We came into this week with 18% in cash, so we haven’t been flooring the accelerator, and given that we don’t anticipate (and that growth stocks as a whole are still in uptrends), we’re not making any drastic moves right now. However, we do want to cut down on risk, while not necessarily turning defensive given the overall evidence.
Thus, we have a few tweaks today:
First, we’re going to take a second round of partial profits in both Roku (ROKU) and Pinterest (PINS), selling one-fourth (25%) of our remaining shares in each. Despite our recent partial sale, ROKU is actually still our largest position, while PINS has now stalled out for a couple of months and is beginning to look wobbly. Long term, we think both have bright futures, but near term, cutting back a bit on each makes sense. SELL ONE-QUARTER OF ROKU AND PINS, HOLD THE REST.
We’re also going to take partial profits in Five Below (FIVE)—the stock is acting well but it’s now been running for five months and got a bit out of trend on the upside at the start of the year. We’ll sell one-third of our shares and hold on tightly to the rest. SELL ONE-THIRD OF FIVE, HOLD THE REST.
Lastly, we’re placing Uber (UBER) on Hold. We don’t have much profit and it closed yesterday below its 50-day line. Big picture, the blastoff in November is still intact, and it has found support above its Monday low, so we’d like to give it a chance. But with our cost basis at 51.6 we’ll likely keep a stop in the upper 40s. HOLD.
With these moves, our cash position will be around 27%, which feels about right given the action of growth stocks. As always, we’re flexible going forward—if things calm down, there are a few names we’re targeting to Buy (Farfetch (FTCH) is one, or possibly filling out our CrowdStrike (CRWD) position), but obviously if we see a rash of breakdowns, we’re open to paring back further.
That’s all for now—your next scheduled message is tomorrow’s (January 28) issue of Growth Investor, though we’ll be on the horn tonight or tomorrow morning if need be. Don’t hesitate to contact me (mike@cabotwealth.com) with any questions before then.