WHAT TO DO NOW: The weakness in growth stocks in general, and cloud-related stocks in particular, continued today, which caused RingCentral (RNG) to trip our loss limit. Thus, we’re selling the half position here; our cash position will now be around 66%.
It was more of the same today, with the major indexes being relatively quiet—Dow closed up 32 points the Nasdaq gained a modest 12 points—but growth stocks again got hit hard, with more than a few earnings duds and follow-on selling among the year’s early leaders.
Tonight’s message is about RingCentral (RNG), which we bought early last week after a powerful surge due to its game changing deal with Avaya. No bad news has come out since then, but the difference is that cloud stocks have imploded, with many crashing 15% to 25% over the past week and a half—including RNG.
Put simply, our timing was clearly as poor as it gets on the purchase, and today the stock tripped our initial loss limit, which was around 15% from our entry price. (Given that we bought a half position, that’s like a 7.5% loss on a “full” position.) Moreover, while RNG is still above moving averages (unlike most of its peers), the straight-down action makes the prior surge look more like a blowoff top than the start of something bullish.
Long story short, RNG was a bad trade, but the goal is to make sure a bad situation doesn’t get much worse. Thus, we’ll follow the plan by cutting the loss while it’s reasonable and holding the cash while we wait for the pressure on growth stocks to subside.