WHAT TO DO NOW: After a solid post-Fed bounce yesterday, growth stocks are coming unglued again today, with the selling pressures not letting up. We had nearly 50% in cash (or more) for the past two weeks, but today we have two changes—first, we’re going to sell the rest of our Cloudflare (NET), which can’t get off its knees, and second, we’re going to Hold on Ambarella (AMBA), which was looking great a week ago but could be joining the rest of the growth stock crowd. Our cash position will now be around 55%.
==
The major indexes are mixed today, but that’s mostly as investors hide in defensive names while again pouring out of growth stocks. As of 11:45 am EST, the Dow is up 145 points, but the Nasdaq is down another 218 points (1.4%).
All in all, the market remains in correction mode, with the solid bounce off the lows last week running into resistance. Our Cabot Tides remain negative, led by the broader indexes, while some secondary indicators continue to look iffy—the number of new lows had been elevated before today, and our own Aggression Index (written about in Thursday’s issue) is on the edge of a big-picture red light.
Moreover, the worst of the selling continues to be concentrated in growth stocks, with plenty of former leaders failing to bounce much, and when they do, the sellers immediately swarm. Indeed, the growth-oriented funds and ETFs we follow have all returned to their lows of two weeks ago.
We don’t want to sound too gloom and doom; we still think this is an overall bull market, and we are beginning to see sentiment turn tail, so some sort of rotation or snapback rally in growth stocks wouldn’t shock us at all. As we write tonight, when it comes to the major indexes, we actually think it’s possible we have a short-term workable low in place.
But most of the evidence is negative, so we continue to think it’s best to remain cautious, to hold off on most new buying (some nibbling is OK, but nothing huge) and wait patiently for the sellers to finish their work.
In the Model Portfolio, we’ve been 50%-ish cash or more for a couple of weeks now, but today we’re making a couple of changes.
First, we’re going to sell our remaining shares of Cloudflare (NET)—we’ve been holding what’s left of our position for a possible bounce, as these high-flyers often rebound after their initial 30%-plus decline. But shares have been unable to get off their knees for more than a day before being smacked right back down. If you want to hang on for a bounce, that’s up to you, but we’ve seen enough. We did sell more than half our stake (in two chunks) at higher prices and will let the rest go today. SELL
We’re also moving to Hold on Ambarella (AMBA), which isn’t broken, but its great resilience and rebound when the market bounced has been quickly replaced by some rough declines, including today’s big move that more than wiped out yesterday’s rally. We’ll move to Hold and keep shares on a relatively tight leash. HOLD
This will leave us with around 55% in cash, so we’re not aiming to sell just to get more defensive. But, while we’re OK giving things some wiggle room, there’s no question the pressure remains intense, so we’re keeping our remaining stocks on tight leashes.
We’ll have a full update in tonight’s issue of Growth Investor. Don’t hesitate to contact me (mike@cabotwealth.com) with any questions before then.