WHAT TO DO NOW: Take partial profits in Chipotle (CMG), which will raise our cash position to around 44%. We’re also moving Inphi (IPHI) to Hold, though we’re placing ProShares S&P 500 Fund (SSO) back on Buy as our Cabot Tides have turned green.
The major indexes were mixed today, with the Dow up 74 points and the Nasdaq losing three points. But the story once again was weakness under the surface, as growth stocks remained under the gun.
What’s interesting is that, despite the broad-based weakness in any stock or sector that’s done well this year, our Cabot Tides actually turned green today, as the intermediate-term trend of the major indexes turned up.
Thus, the evidence is clearly mixed—the overall bull market looks OK and the August correction appears to be concluding, but the buying is clearly concentrated in beaten-down areas. In fact, the number of stocks hitting new highs on the Nasdaq today was one of the lowest figures of the past five months.
Because we invest mostly in individual growth stocks, we’re taking our cues from them right now; you should remain mostly cautious until the selling pressures ease. But we do think the Tides’ green light is a signal not to get overly negative or defensive.
Tonight, we’re going to sell one-third of our stake in Chipotle (CMG), which broke down today, and place Inphi (IPHI), our newest addition, on Hold. We’re also restoring our buy rating on ProShares Ultra S&P 500 Fund (SSO). Our cash position will now be around 44%.
Given the Tides, we’re not opposed to doing a little nibbling going forward, but we need to see the market settle down and growth stocks find support before going there.
Given the hectic action, let’s run through all of our stocks and give you our quick thoughts:
BX: Nosed to new highs today before reversing. It’s possible it pulls back further given that anything near its highs is being hit, but there should be some decent support a point or two below here. It doesn’t hurt that this is loosely tied to the financial sector, either. We’ll stay on Buy, but keep new purchases small. BUY.
CMG: The stock was clocked today, partly due to the rotation and partly because New York City launched a (probably politically motivated) labor lawsuit against it. Do we think this could be superficial news and CMG will bounce back? Sure, especially since we doubt this lawsuit will hurt business at all. That said, we’re looking at the action more in terms of the market—news or not, CMG has had a huge run this year, and today’s selling (and the environment) raises the odds of a deeper and more prolonged rest period. Thus, we’re going to follow the usual script—we’ll take partial profits, selling one-third of our position here and holding the rest for now. SELL ONE-THIRD, HOLD THE REST.
COUP: Of all the cloud software stocks, COUP is one of the few that’s actually holding in there relatively well, still hovering in its August support area. If the group can get off its knees, we think COUP could enjoy another leg up, but we’re not ignoring the action either—we sold one-third of our position on yesterday’s bulletin and will hold the rest with a stop near our cost (low/mid 120s). HOLD.
CVNA: Like most growth stocks that had held up, the sellers came around for the stock today, but despite the whack it’s well above its 50-day line and above its post-earnings August lows. It could continue lower, of course, but going with the evidence today, we’re still OK grabbing a half-sized position here if you’re not yet in. BUY A HALF.
IPHI: Has taken a hit with other stuff, but doesn’t look too bad, plus we have “just” a half position. We’re using a loss limit in the 54 area, give or take. Will go to Hold to respect the environment and our modest loss. HOLD.
OKTA: We sold the rest of our position on yesterday’s bulletin. We wouldn’t be shocked to see this and other hard-hit names bounce, but after such a big run during the past 18 months, odds favor time being needed to repair the damage. SOLD.
SSO: It’s rallied back into an area of some resistance, but with the Tides turning positive, we’ll go back to Buy—but as with others, we’d probably keep new buys on the small side right now. SSO is also benefiting a bit from the rotation, of course. BUY.
SNAP: Has SNAP been tedious? You bet. But it filled the rest of its earnings gap (from late July) today and found a little support. We’re still holding, albeit with a tight mental stop in the low 14s. HOLD.
Your next issue will be out on Thursday, September 12. Don’t hesitate to email me with questions/comments!