WHAT TO DO NOW: Remain cautious. The selling pressure that has been spreading is really hitting the major indexes today—though, interestingly, many growth stocks are finding support as fears of the Delta variant of the virus spread. At this point, our Cabot Tides have flashed a sell signal and the onus is clearly on the bulls to step up. While we’re keeping our eyes peeled, our only change in the Model Portfolio is placing ProShares Ultra S&P 500 Fund (SSO) on Hold; we have a couple other names on tight leashes and have brief remarks on all of them below. Our cash position remains just over 50%.
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Today is a wild day in the market, with supposed fears over the Delta variant of the virus causing weakness in the major indexes. As of 2:45 pm EST, the Dow is off 919 points while the Nasdaq is down 212 points.
Of course, today’s move comes after a growing amount of worrisome evidence, including a narrowing of the advance (most stocks below their 50-day lines even as the big-cap indexes were near new highs) and severe selling in many growth areas last week, and now we have our Cabot Tides turning red.
To be fair, today is seeing many growth names (including a few that are setting up nicely in multi-month patterns) find solid support. We still see a good number of setups out there among growth stocks.
Still, the onus is clearly on the bulls at this point—the last three weeks has cracked many indexes, sectors and stocks, and given the myriad crosscurrents, a deeper correction is possible. We won’t predict what’s to come, but right now we favor playing defense and to watch if/when the bulls show up.
In the Model Portfolio, we actually had a few stocks up today. Here’s a quick update on our stocks:
Cloudflare (NET): Up today and looks fine, though earnings are out in a couple of weeks. Still OK nibbling. BUY A HALF
Devon Energy (DVN): Our weakest stock, as it’s come unglued with the whole energy sector. If you’re craving cash, we wouldn’t argue if you ditched DVN, but we’re holding tonight to see how it reacts after the recent whoosh lower. We have a mental stop a few dimes away from here. HOLD
DocuSign (DOCU): Impressive resilience; things can change but this might be the #1 growth stock in the market right now. Hang on. BUY A HALF
Five Below (FIVE): Not great, but still within this trading range and, at day’s end, is just 12% or so from new high ground. HOLD
Floor & Décor (FND): Still holding most of the gains of the recent bounce. BUY, though we’d probably keep new positions small given the market.
Progyny (PGNY): PGNY is our second weakest stock (after DVN), though it bounced well today. Let’s see if last week’s slide shook out most weak hands. HOLD
ProShares Ultra S&P 500 Fund (SSO): Going to hold given the action in the indexes and could shave off a few shares if the selling continues. The S&P 500 is right at its 50-day line. HOLD
If we are forced (or choose) to sell a name or two, and if growth stocks continue to find support (two big ifs), we could replace any sells with half-sized new positions—leading candidates remain Asana (ASAN), Bill.com (BILL) and CrowdStrike (CRWD). But as always, we’ll just take what comes and remain flexible.
We’ll have more in Thursday’s update—until then, don’t hesitate to email me mike@cabotwealth.com with any questions.