The market and especially growth stocks fell sharply today, with the Dow losing 345 points and the Nasdaq falling 212 points, giving back all of yesterday’s bounce.
While the market’s long-term trend is still up, our Cabot Tides and Two-Second Indicator are both negative, telling us to be cautious and focus on capital preservation.
Last week, we sold Facebook and half our stakes in both Alibaba and ProShares Ultra S&P 500 Fund, bringing our cash position up to 35%. Tonight, we’re going to take the rest of our profits in ProShares Ultra S&P 500 Fund (SSO) and Alibaba (BABA), which will boost our cash position to around 42%. We’re also going to place Proofpoint (PFPT) and Shopify (SHOP) on Hold.
Back to the market, there are some positive divergences developing in the broad market, and if the market can rally strongly from here, it could indicate that this two-month correction is over. But the onus is clearly on the bulls to step up, and until that happens, you should hold off most new buying and keep losers and laggards on tight leashes.
Tonight’s sales will leave the Model Portfolio with seven stocks, and we’re keeping HubSpot (HUBS) and Splunk (SPLK) rated BUY, but keep new positions small and only buy if you have plenty of cash on the sideline. Stocks now rated HOLD include Five Below (FIVE), Grubhub (GRUB), PayPal (PYPL), Proofpoint (PFPT) and Shopify (SHOP).