WHAT TO DO NOW: We’re selling Snap (SNAP), which hasn’t been able to get off its knees, but we’re going to reinvest the proceeds in two steps—first, by adding another half-sized position in DocuSign (DOCU), and second, by initiating a half-sized position in RingCentral (RNG). Our cash position will still be in the low 50% range after these moves. Details below.
The market was quiet today as a good number of traders and big investors had the day off for Columbus Day. As of 1:45 p.m., the Dow was down 14 points and the Nasdaq was off 10 points.
As we wrote in last week’s issue, the market’s main trend continues to be sideways, and while the evidence says the next major move is likely up, we have to see buyers show up for more than just a day or two before thinking the chop-fest is over.
Tonight’s message is in regards to Snap (SNAP), which has been unable to get off its knees in recent weeks and dipped below our mental stop today. Thus, we’re going to cut the loss in the position.
Looking back, our stop was probably a bit too loose, though we could have said something similar with Coupa (COUP), which has stormed back to new highs after nearly breaking down. It’s a tricky situation, but right now, we think it’s best to make sure a sour situation with SNAP doesn’t get any worse, and sell.
The sale of SNAP will leave us with a cash position that’s approaching two-thirds of the portfolio; while we’re cautious, the evidence doesn’t support being downright defensive, so we’re going to reinvest the proceeds tonight in two steps.
First, we’re going to buy another half position (half of what you’d normally buy dollar-wise, which for us is around 5% of the portfolio) in DocuSign (DOCU), which is acting like a real leader. Given the choppy market, we’ll be using a relatively loose stop in the mid-50s for the entire position.
We’re also going to initiate a half position in RingCentral (RNG), which we wrote about in last week’s issue. Yes, it’s extended to the upside, but the recent buying power has been out of this world and the Avaya deal looks like a fundamental gamechanger. BUY A HALF.
Our cash position will still be around 53% after these two moves.
We’ll be sending a fuller update as usual this Thursday (October 17). Don’t hesitate to email (mike@cabotwealth.com) with any questions.