WHAT TO DO NOW: For the first time in months, the market’s intermediate-term trend has turned clearly down, with the sellers punishing everything today and driving all indexes below support. On a stock-by-stock basis, it’s not the end of the world, but it’s not a time to be a hero, and keeping tight leashes on your weakest names makes sense. In the Model Portfolio, we were already holding 31% cash so we’re not advising to sell wholesale, but given the Cabot Tides sell signal, we’re going to sell half of our relatively large stake in ProShares Ultra S&P 500 Fund (SSO), leaving us with around 36% in cash.
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The market is taking a beating so far on Monday, and this time, the selling is across the board. As of 1 pm, the Dow is down 724 and the Nasdaq is down 392.
Today’s move is enough to produce a clear sell signal in our Cabot Tides for the first time in a while. As always, we’ll take it as it comes—maybe this proves to be a massive shakeout, but we always lean toward being in gear with the evidence rather than fighting it, and after such a prolonged run (at least in the big-cap indexes), we’re not going to ignore the breakdown.
On a stock-by-stock basis, the action is less threatening—as opposed to earlier this year, growth stocks are generally holding up better than the major indexes, with few major breakdowns occurring today. That’s not a reason to be complacent, but because the crosscurrents and choppy action had us being somewhat cautious of late, we’re not selling wholesale today.
Tonight, though, we are going to pare back on our ProShares Ultra S&P 500 (SSO) position, which has been a great winner for us—we’ll sell half of our remaining shares and hold the rest. SELL HALF OF SSO, HOLD THE REST.
We’re also watching all of our other names closely; DocuSign (DOCU) could be next on the chopping block, and Devon Energy (DVN) remains a thorn in our side, but tonight we’ll hold on and see what comes in the days ahead.
We’ll have more in Thursday’s issue of Cabot Growth Investor (or, if necessary, more special bulletins this week)—until then, don’t hesitate to email me mike@cabotwealth.com with any questions.