It was a volatile and divergent day in the market, with the Dow rising 198 points but the Nasdaq fell one point and growth stocks got hit very hard, registering one of their worst days of the year.
The bull market remains intact, with both of our trend-following measures still positive. And even among growth stocks, most remain in intermediate-term uptrends with few breaking down.
That said, within the context of the past few weeks, today’s action is a cause for concern. Growth stocks rose to giddy heights with exuberant sentiment by mid-June, then suffered a very sharp correction. The rally since then has been much narrower and come on light volume, and now we have today’s distribution.
We don’t advise selling wholesale, but the next few days should be telling, especially as more earnings reports come in.
In the Model Portfolio, we are going to sell one-third of our shares in Five Below (FIVE) tonight, taking partial profits after a good rally. Longer-term, we still believe the stock has further to run, but after its recent action we’ll take some off the table.
We’re also going to place Shake Shack (SHAK) on Hold, as the stock had hit resistance a couple of times in recent weeks ahead of earnings.
All in all, we still have nine stocks in the Model Portfolio, three of which are rated BUY. They are Ligand Pharmaceuticals (LGND), PayPal (PYPL), and Teladoc (TDOC), which we’ll leave on Buy tonight because the stock’s decline today was exaggerated by a secondary offering. The next few days will tell us whether this is a brief shakeout or the start of a longer pause.
Stocks rated Hold are GrubHub (GRUB), Nutanix (NTNX), Okta (OKTA), Proofpoint (PFPT), Shake Shack (SHAK) and our remaining shares of Five Below (FIVE).