WHAT TO DO NOW: Growth stocks are being taken to the woodshed today, and this comes after some climactic upside action in the indexes and key leaders in recent days/weeks. Moreover, we’re starting to see some growth leaders crack support for the first time during this rally. We came into today with 28% in cash, and today we’re going to sell Chegg (CHGG) and Cloudflare (NET) today, which will give us around 42% in cash. Details below (and in tonight’s regular update).
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Today is shaping up to be a decisive day, with the Down down 750 points and the Nasdaq off 600 points near 11:30. Moreover, growth stocks are getting crushed, with the average name we watch and are following down around 7%.
The combination of a huge five-month run, followed by accelerated upside in the indexes and many leaders, and then massive-volume selling, isn’t usually a great sign. We’re not ones to call tops—we’re trend followers, not trend predictors—but we’re seeing more abnormal action and (for the first time in a while) some legitimate breaks of support.
Of course, there have been some iffy times in recent months, and the market has been able to shake things off, so we don’t advise selling wholesale. Indeed, our trend-following market timing indicators are still clearly bullish, and many long-term markers point to higher prices down the road.
But we do think the odds of some rough sledding in growth stocks has risen. We sold another one-third of our position in DocuSign (DOCU) in a special bulletin yesterday, and today, we’re going to take profits in two more names, selling all of our shares in both Chegg (CHGG) and Cloudflare (NET). That will leave us with a cash position in the low 40% range.
We still think many stocks are acting acceptably, and if the buyers can step up and the situation stabilizes, we’re not opposed to reinvesting some money into some “fresher” leaders. But right now we’re favoring protecting profits and holding some cash.
We’ll have a full report on tonight’s regularly scheduled update, due out after the close.