WHAT TO DO NOW: The market has a solid start to the week, and there were some intriguing breadth measures during the pop. But our market timing indicators are still clearly negative, and more important, we’re actually seeing growth stocks either not participate much on the upside—or start to crack on today’s selling. This bulletin concerns Enphase (ENPH), which has been a port in the storm but is decisively breaking down today; we’re cutting bait here and holding the cash.
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After two great days, the major indexes are back in the red today, with the Dow down 390 points and the Nasdaq off 240 points.
Nothing has changed with our major indexes, with all three (Trend Lines, Tides and Two-Second Indicator) still clearly negative. That said, from a top-down perspective, the market’s very strong rally on Monday and Tuesday this week did bring some intriguing power and breadth; Monday (89%) and Tuesday (95%) saw giant up volume days on the NYSE, with Tuesday’s being the largest one-day reading since early January 2019 (when the market was coming out of a brief bear phase).
As we’ve been writing, our antennae have been up given the crystallization of bearish sentiment, and the strong rally early this week is something to keep an eye on.
However, the missing ingredient so far: Leadership. In fact, most resilient names bounced modestly if at all early this week, and today some are actually cracking. That’s what today’s bulletin is about—Enphase Energy (ENPH) has been a port in the market’s storm for weeks, but today it’s being mauled on huge volume, breaking support.
Big picture, ENPH isn’t in tatters, as it’s well above its breakout area (before earnings) of 225; similar to Celsius (CELH), which we sold a few weeks back, it could round out a launching pad in the weeks ahead if all goes well.
But this isn’t the type of environment to wait around and see if things shape up. If you want to sell some/hold some type of thing for a bounce, that’s fine, but we’re going to cut bait here and hold the cash. SELL ENPH
That will leave us with something near 90% in cash—which, even in a bad market, is too high for our comfort level. Thus, we could put some/all of ENPH’s proceeds back to work soon (Growth Investor issue is tomorrow evening), but we’ll sit tight here.
Don’t hesitate to email me directly at mike@cabotwealth.com with any questions. We’ll have our next issue on Thursday (October 6) with further thoughts and updates on all of our positions.