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Growth Investor
Helping Investors Build Wealth Since 1970

September 23, 2020

The market’s continued weakness has tipped our Cabot Tides to the negative side of the fence for the first time since April.

WHAT TO DO NOW: The market’s continued weakness has tipped our Cabot Tides to the negative side of the fence for the first time since April. That said, we’re not changing wholesale as we’ve been cautious for a while (40%-plus cash for three weeks), and encouragingly, many of our stocks are holding their own (or even advancing). In the Model Portfolio, we have one small change—we’re going to take partial profits on ProShares Ultra S&P 500 Fund (SSO), selling one-third of our position given that the Tides have turned negative. That will leave us with a cash position of around 44%.

Stocks are reversing yesterday’s rebound today—around 3 p.m., the Dow is down 509 points and the Nasdaq was sinking 313 points.

The action of the past few days has flipped our Cabot Tides to a sell signal, the first time it’s been negative since April of this year. How this decline turns out—from a shakeout to a major decline—is anyone’s guess, though with our Cabot Trend Lines still firmly bullish (and with little longer-term abnormal action among leading stocks), the odds continue to favor this being a correction within an ongoing bull market.

Because we’ve been listening to individual stocks, we’ve been playing things cautiously for a few weeks now; even after last week’s moves, we came into today with 41% in cash in the Model Portfolio. And, happily, most of our stocks are hanging in there, so we’re not advising any dramatic moves.

That said, we do own a leveraged long index fund in ProShares Ultra S&P Fund (SSO), and with the Tides negative, we’re going to trim our position—we’ll sell one-third of our shares here for a modest profit and hold the cash.

That will leave us with around 44% in cash. Frankly, we’re not opposed to doing a little more nibbling, whether that’s filling out a half-sized position we already own (ROKU or PINS look fine) or grabbing another stake in a potential fresh leader, but we’re also willing to prune further should the decline gain steam.

Tonight, though, the partial SSO sale is our only change, and until the major indexes right themselves and more stocks power ahead (very few names are hitting new highs), we think a cautious stance remains appropriate.

Your next scheduled message is tomorrow’s (September 24) issue of Cabot Growth Investor, though we’ll be on the horn before then if need be.