WHAT TO DO NOW: The market is taking another big hit today, causing our Cabot Tides to turn negative and cracking more stocks. In the Model Portfolio, we came into the week with 45% in cash, but we’re raising more today—we’re selling our half-sized stake in ZoomInfo (ZI), which has fallen apart with growth stocks and the market. That will leave us with around 50% on the sideline.
After a so-so bounce yesterday (good for the major indexes, not great for the broad market), a combination of fresh virus fears and hawkish words from the Federal Reserve is sending the market reeling again. As of 12:30 EST, the Dow is off 590 points and the Nasdaq is down 264 points.
Stepping back, while the big-cap indexes are still in decent shape, the real story of what’s going on can be seen in the rest of the market—we’re now seeing hundreds of stocks hitting new lows every day (so far today: 240 on the NYSE and 540 on the Nasdaq), with fewer than half of stocks above their long-term 200-day lines even before today’s selling. Our own Cabot Tides are turning negative today, as the broader indexes (NYSE Composite, S&P 600 SmallCap, S&P 400 MidCap) are nosediving below their 50-day lines
Growth stocks have been even worse, with most good-looking stocks turning sour in a hurry, while growth-oriented funds and indexes have been taken apart (Next Gen 100 (QQQJ) is down 5.3% in six days; Ark Innovation Fund (ARKK) is down 16% in three weeks!).
Long term, our Cabot Trend Lines are still positive, and many leaders are down but not out, so we’re not going to go with any big-picture bearish view; we can’t rule out this being a sharp shakeout on obvious bad news (virus, Fed tightening) that will pave the way toward the next sustained uptrend.But we also urge against complacency, as we’ve seen more breakdowns this week than we have since February. We’re fine holding your profitable stocks that are still handling themselves decently (especially if you’ve already booked partial profits), but it’s important to guard against big positions and growing losses.
In the Model Portfolio, we did a good amount of selling last week, hiking our cash position to 45% entering this week. Tonight, we’re going to sell our half position in ZoomInfo (ZI), which was recommended right before the growth stock selling started, and the recent pile-on activity has cracked the uptrend. We’ll swallow the loss here and hold the cash.
Ambarella (AMBA) has earnings due out tonight—it’s been acting fairly decently given what’s going on, and because of our profit and the fact we only own a half-sized stake, we’re fine giving it some rope. But we’ll be watching the rest of this week to see if earnings make or break the stock.
Lastly, Dexcom (DXCM) has taken on water, caught up in the market selloff as well as fears that any new virus wave will cut back on elective doctor visits, which could in turn slow adoption of its G6 and G7 here and in Europe. Still, right now, we’re holding, but have a mental stop a couple percent below here, so our leash is tight.
That’s all for now. Don’t hesitate to email me mike@cabotwealth.com with any questions.