WHAT TO DO NOW: Remain cautious. The market is continuing its downdraft, with the rest of the market being caught up in the selling, with growth stocks again leading the way lower. At this point, we’re OK giving things some extra rope, as the selling has become very obvious, but we’re also not going to violate any hard-and-fast rules. In the Model Portfolio, we’re going to let go of Datadog (DDOG) today as it’s sliced through our loss limit, which will hike our cash position to around 60%.
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The market meltdown is continuing today, and while it’s being led by growth stocks, the selling is spreading out to every nook and cranny of the market—as of 12:30 eastern, the Dow is down 511 points while the Nasdaq is cratering another 350 points.
There’s really not much new to report here, as growth stocks remain in a crash phase, which has now pulled even the Nasdaq below its 200-day moving average. Indeed, our Cabot Tides have flipped back to a red light, though more important to us is the action among individual stocks. All told, it’s clearly a time to be cautious if not outright defensive as we wait for the market to find a workable low.
The question, of course, is how to handle stocks you still own that, like everything growth, are getting taken apart. We never catch falling knives, but it doesn’t take much expertise to see that the growth stock debacle has become obvious and painful, with tons of stocks down 40% or more from their highs and severely stretched to the downside.
That said, calling for a bounce is always tricky (could have done that a few days ago, etc.), so our game plan is to (a) remain cautious and sell things that violate hard-and-fast rules (like loss limits), but (b) try to give other things at least a chance to bounce.
Last week, we hiked our cash position up to around 55% by selling Ambarella (AMBA), and tonight, we’re forced to sell our half-sized stake in Datadog (DDOG), which started to put up a fight last week but has sunk below our loss limit today. That will bring us up to nearly 60% on the sideline.
While we could prune more right now given the damage, we’re going to hold off and see what comes—but, as always, we’ll have more special bulletins if need be in the days ahead.
Don’t hesitate to email me mike@cabotwealth.com with any questions.