WHAT TO DO NOW: Do a little trimming. Most of the evidence remains bullish, so we do, too, but we do see potential for near-term potholes, at least among growth stocks. Today, we’re going to sell one-third of our remaining shares of DocuSign (DOCU) and our half position in Chewy (CHWY), which will leave us with around 15% in cash. Details below.
The major indexes are up as we start a holiday-shortened week, with the Dow up 373 points as of 11:15 am and the Nasdaq up 24 points. But it’s a heavy rotational day, with the broad market up but leading growth stocks getting hit.
Most of the market’s evidence remains positive, and thus we remain optimistic the market will be higher in the weeks and months ahead. However, we’re also seeing some near-term potential for potholes—there’s been a lot more up-down-up-down action after an extended (13-plus weeks) run, which is often a sign of distribution, and going along with that is that few stocks are near good entry points after big runs.
Moreover, the market’s bifurcated environment continues, with growth stocks the only area recently hitting new highs, and today, we’re seeing another bout of rotation, with growth stocks getting nailed while the broad market meanders.
None of this is a reason to sell wholesale or anticipate a major correction. But we are going to make a couple of small moves today. First, we’re going to sell one-third of our remaining position in DocuSign (DOCU), which has had an amazing run but broke badly today. We don’t think the stock has hit an ultimate top, but it’s prudent to lighten our position, taking another round of partial profits. SELL ONE-THIRD OF DOCU.
We’re also going to sell our half position in Chewy (CHWY)—we still like the story, but after two months of holding, we have hardly any profit to show for it. We could always revisit the stock down the road, but at this point we’ll get out just north of breakeven and hold the cash. SELL CHWY.
These two moves will leave us with around 15% in cash. As always, we’ll just take it as it comes—if the long-awaited correction finally materializes (likely coinciding with a Tides sell signal), we’ll raise more cash, likely through a combination of further partial profits (DXCM? OKTA?) and/or selling something that is acting OK but not great (maybe CHGG or VRTX).
That said, it’s always possible this proves to be another shakeout, which could lead to some solid entry points among early-stage leaders.
Today, though, given what we see, we’ll make these two small moves and take it from there.