WHAT TO DO NOW:Sell the rest of your shares in Coupa (COUP). In the Model Portfolio, that will leave us with a cash position just north of 60%.
As we’ve seen in recent days, the major indexes are a bit soft this morning, with the Dow down 73 points and the Nasdaq down 15 points. But growth stocks are again nearly uniformly in the red, with some names getting taken out and shot.
Last night, we decided to hold our shares of Coupa (COUP) despite this week’s ugly slide, as the stock was still within its consolidation area of the past few months—though we also hiked our mental stop given the funky action. And this morning, instead of finding support, COUP is again down on another round of heavy volume.
After a sharp drop, a bounce is always possible, but the combination of the sector’s weakness following a huge, prolonged run, COUP’s failed breakout and the outsized selling volume this week tells us a more meaningful top is possibly in place. At the very least, the stock doesn’t appear like it will be ready to lead any market advance that gets going.
Beyond that, the simple fact is that COUP is violating our stop this morning—thus, we’re going to take the rest of our profit here and hold the cash.
That will leave the Model Portfolio with a bit more than 60% in cash, which is more than we’d prefer. That said, we’re not eager to throw much more money into this meat grinder environment for growth stocks. We could put a little money to work if things stabilize, but for now we’ll just keep the cash on the sideline.
That’s all for now—your next scheduled message is next Thursday’s (October 24) issue of Growth Investor. Don’t hesitate to contact me (mike@cabotwealth.com) with any questions before then.