WHAT TO DO NOW: Growth stocks have come under renewed pressure in recent days as the Nasdaq’s recent rally attempt has hit a wall, with a few former leaders already testing their lows. We’ve been cautious for three weeks now, and tonight, we’re going to sell our remaining position in Roku (ROKU), as the stock is showing relative weakness even compared to other growth titles. That will bring our cash position near 55%.
Wednesday was a terrible day for the market, and despite an early rally attempt, Thursday isn’t shaping up to be much better—as of 11 a.m. ET, the Dow is down 280 points, the Nasdaq is off 139 points and the average growth title we follow is down another 2.7%.
Most indexes have begun to be dragged down by the Nasdaq in recent days, which has placed our Cabot Tides on the fence. We’ll see how that goes in the days ahead, though we’ve been taking our cues from individual growth stocks, most of which broke down two or three weeks ago.
In the Model Portfolio, we’ve been sitting with around 50% cash for the past couple of weeks, and we’re not eager to get super-defensive, but we’re also not willing to let our remaining positions just melt away. As we wrote in tonight’s issue of Cabot Growth Investor, the goal is to get from here to the start of the next sustained upturn with as much capital and confidence as possible.
Thus, tonight, we’re going to cut bait with our weakest position, which is Roku (ROKU), as shares already eked to a new correction low today much faster than the Nasdaq and most growth stocks. Of course, we had already sold around 60% of our initial position before this, and continue to have a big profit on these shares, so if you want to give the stock a chance to bounce, that’s fine. But with the Nasdaq/growth stocks weak and ROKU showing little resilience, we’ll sell, hold the cash and look for greener pastures when the bulls return. SELL.
That will leave us with around 55% in cash—we’re not opposed to a half-position buy or two in some potential future leaders, but we need to see the buyers step into growth stocks before putting money into this meat-grinder environment.
Your next issue of Cabot Growth Investor will be e-mailed out tonight. Don’t hesitate to email me mike@cabotwealth.com with any questions!