Further bad news on the U.S.-China trade front prompted another sharply lower open today, and unlike Monday, the buyers never showed up. At day’s end, the Dow had fallen 473 points and the Nasdaq plunged 160 points.
Bigger picture, we remain optimistic that this is a bull market that has further to run in the months ahead, and indeed, our long-term Cabot Trend Lines remain firmly bullish.
However, after four months of nearly straight-up action, the question is whether recent yellow flags (lagging small caps, lots of rotation, signs of complacency) are combining with this week’s news to kick off a “real” correction.
Our Cabot Tides are now on the fence after the drop of the past two days, with many indexes we track right around their 50-day lines—the trend is technically up, but if support doesn’t appear soon that could change. Leading stocks are in a similar boat, with most taking on water in recent days, but few outright breakdowns.
Going forward, we’re simply going to play things by the book. If the market and some of our stocks crack, we’ll raise more cash, but if the buyers reappear, we’re happy to hold on (and even add a new stock if the rebound becomes powerful).
In the Model Portfolio, we already have a cash position of 21% and, frankly, we like the look of most of our stocks. Thus, we have no new buys or sells tonight. But we are going to place Carvana (CVNA) (mostly because it will release earnings tomorrow evening) and Five Below (FIVE) on Hold, where they join Twilio (TWLO) and Workday (WDAY), the latter of which we’re keeping on a tight leash.
We’ll stick with Buy ratings on Chipotle Mexican Grill (CMG), Okta (OKTA), Planet Fitness (PLNT) and the ProShares Ultra S&P 500 Fund (SSO).
We’ll be on the horn with any further changes in the days ahead, and of course we’ll have a full Cabot Growth Investor issue for you on Thursday evening (May 9). Don’t hesitate to email with any questions – mike@cabotwealth.com