WHAT TO DO NOW: Growth stocks continue to look iffy, with selling pressure becoming more persistent while money flows into other areas. Of course, the rest of the market is looking OK (including some fresher leaders that are hanging in there), but we continue to trim our sails given what’s going on. Today, we’re selling one-third of our position in Cloudflare (NET), which has taken on water after earnings. Our cash position will now be around 32%, give or take.
The major indexes are mixed early on, but growth stocks remain under pressure, with more breaking below intermediate-term support (50-day lines, etc.) or showing some abnormal action in the near-term.
Overall, our market timing indicators are still bullish, and even among individual stocks, we’re seeing some fresher leadership emerge on earnings. Thus, we’re not anxious to get into the storm cellar, and should growth stocks stabilize, we continue to see some names we wouldn’t mind taking a swing at (though we may start with half-sized positions given what’s going on).
However, while we’re not all bear’d up, there’s no question that, for the first time in months, we’re seeing some of the extended leaders (those that broke out in April/May and have generally been running since) get hit for more than a day or two, with some breaking down completely.
Thus, we continue to pare back, building up some cash while taking some profits after big runs. Today, we’re going to sell one-third of our stake in Cloudflare (NET), which has come down hard after earnings. Like many names, our thought is that the big-picture future is bright—the quarterly report was great, we think the firm will show rapid, reliable growth for a long time, and the stock just got going earlier this year, so it’s far from “over-owned”). But near-term, NET looks like it’s likely going to need time to shape up a bit, so we think shaving off some profits and holding the cash makes sense. SELL ONE-THIRD, HOLD THE CASH
This move will get the portfolio to nearly one-third in cash, which is fine for now. That said, we continue to update our watch list—if things can stabilize/growth stocks can rebound some, we could put some cash to work (though probably somewhat cautiously), but right here, we’re content to pare back and see if/when leaders find some support.
Your next scheduled message is Thursday’s (August 13) Cabot Growth Investor, though we’ll be on the horn before then if we have any further changes.