The market was slammed today as a quiet open turned into a huge wave of distribution. At day’s end, the Dow had lost 396 points and the Nasdaq plunged a severe 219 points.
While there are actually some rays of light out there, including rapidly worsening sentiment and some positive broad market divergences, today was effectively a crash in growth stocks, with many former leaders ripping through prior support.
In the Model Portfolio, Okta (OKTA) and Teladoc (TDOC) were caught up in today’s selling, with both plunging through long-term moving averages. Frankly, it’s possible the stocks could bounce nicely if the current retest process seen in the Nasdaq is successful. But we’ve given these partial positions every chance to hold up in recent weeks, and today’s big-volume selling through key levels forces us to cut bait.
The sale of these two stocks will leave us with just one stock in the Model Portfolio and a massive cash position of around 90%, a hugely defensive posture that we haven’t been in for many years. If the market stabilizes in the days ahead as the Nasdaq retests its lows, we wouldn’t mind putting a little money back to work in potential new leading stocks, all while keeping a highly defensive stance with a cash position north of 75%.
But for the moment, we don’t see a good reason to throw good money after bad, especially given the sharp downtrends and extreme selling in most growth stocks. Thus, we’ll hold the cash tonight but will see how things develop going forward.
Our lone stock left in the Model Portfolio Five Below (FIVE) is still rated Buy if you have plenty of cash on the sideline.
Your next scheduled message is tomorrow, Tuesday November 20 at 5 pm. Thank you very much.