WHAT TO DO NOW: The market was hit hard again today as investors continued to discount a protracted trade war between China and the U.S., with fears of slowing growth bringing out the sellers. When the closing bell rang, the Dow had lost another 221 points and the Nasdaq had fallen 60 points, both falling to new correction lows.
Overall, our Cabot Tides remain negative, and there’s little doubt that the selling pressure has broadened out—more leading growth stocks have taken on water (though, to be fair, many are hanging in there), and we’re now seeing even defensive areas of the market (consumer staples, etc.) come under pressure.
On that note, today saw a pickup in the number of stocks hitting new lows on both the NYSE and Nasdaq (north of 200 on each), which are the largest figures since last December’s market bottom.
Our long-term Cabot Trend Lines are still positive, and we are seeing more signs of worry among sentiment measures (the total put-call ratio hit its highest level since the bottom today), both of which are plusses. Still, while you shouldn’t throw everything overboard, we continue to advise a cautious stance, with little new buying, tight leashes on underperformers and a good chunk of cash on the sideline.
We came into today with a 33% cash position in the Model Portfolio, and tonight we’re going to boost that further by selling half our stake in Workday (WDAY), which reported a solid quarter last night but was hit hard today nonetheless. We’re also going to place Twilio (TWLO) back on Hold as the stock’s strength two weeks ago has faded.
Going forward, we remain open to anything—it certainly wouldn’t shock us if this decline, which is now nearing four weeks long and has taken the S&P 500 down a bit more than 6%, finds support. But there’s no question the sellers are in control right here, and until that changes, it’s best to take action as things falter; don’t be complacent.
The partial sale in Workday will leave us with around 38% in cash. We’ll keep Okta (OKTA) and Planet Fitness (PLNT) rated Buy, but we’d keep new positions on the small side, especially with Okta, which reports earnings later this week. We have Chipotle (CMG), Five Below (FIVE), ProShares Ultra S&P 500 Fund (SSO), Twilio (TWLO) and the rest of our Workday (WDAY) position now rated Hold.
We’ll be on the horn with any further changes in the days ahead. Don’t hesitate to email with any questions – mike@cabotwealth.com