WHAT TO DO NOW: Growth stocks continue to bleed today, with many down 4% to 10% even as money rotates into cyclical areas. Our trend-following indicators are still positive, so we’re not selling wholesale, but as growth investors, we are turning cautious—we came into this week with 41% in cash, and tonight, we’re going to cut bait in Halozyme (HALO), which will leave us with a bit over 50% on the sideline.
Growth stocks remain under pressure, while the broad market is doing its best to hang in there. At around 2:20 pm EST, the Dow is up 33 points but the Nasdaq is off another 313 points. (The average growth stock we own or watch is off more than 4% as we write.)
Our trend-following indicators remain positive, so we’re not willing to take a market-wide stance, but there’s little doubt that growth stocks are on the outs—the initial weakness and breakdowns we saw last week have continued this week, with more stocks cracking intermediate-term support and flashing sloppy action.
Clearly, there’s a major rotation going on out of last year’s winners and into more of the cyclical sectors. Indeed, a couple of our stocks that have exposure to the reopening theme have actually perked up this week.
Even so, the bottom line is that most growth stocks are under pressure or have begun corrections, and that argues for a cautious stance. We’re not selling wholesale and are willing to sit through corrections in what we view as early-stage names, but after big runs, you should avoid complacency and make sure nothing gets away from you on the downside, especially if you have a loss or a big position.
We came into this week with 41% cash in the Model Portfolio, and tonight we’re going to boost that by selling our stake in Halozyme (HALO), which has continued to bleed lower since earnings and a big convertible share offering last week. Frankly, we still like the story, but the stock never really accelerated higher and has now flashed abnormal action—a bounce wouldn’t surprise us, but HALO is now below our average cost, and with growth stocks getting whacked and the stock unable to find its footing, we’re going to cut bait, leaving us with a bit more than 50% in cash. SELL.
We have other names getting hit as well (we’re likely to place PINS on Hold in tomorrow’s update), though we did have a couple of stocks in the green, too. Still, as growth investors, we think it’s time to focus more on capital preservation after a huge upmove and recent signs of abnormal selling.
Big picture, this is still a bull market, and even some of the recent ugly moves in some stocks look OK on a longer-term basis—we believe our remaining stocks will see solid upside down the road, and there should be some fresher leaders (like the recent IPOs we wrote about in the last issue) for the next growth upleg.
But right now, we think it’s best to lighten up and stay flexible—if the buyers return, we’ll be ready, but right now the onus is on the bulls to step up.
Don’t hesitate to email me directly (mike@cabotwealth.com) with questions.