WHAT TO DO NOW: Continue to play things a bit carefully as the market’s position deteriorates. Our Two-Second Indicator and Cabot Tides are weakening, and leading stocks, which had been churning for weeks, are continuing to give up ground. It’s possible this morphs into some sort of news-driven shakeout (especially given the hourly Middle East headlines), but we’re simply taking it as it comes. We already have 28% cash in the Model Portfolio, but we’re going to pare back further, cutting our loss in our half position in Celsius (CELH) and selling one-third of our position in Pulte (PHM). Our cash position will now be around 36%.
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The market and leading stocks are down once again today after a failed bounce this morning. As of 140 pm EST, the S&P 500 is off 0.9% and the Nasdaq is down 1.5%, with growth stocks down even more than that.
Following weeks of stalling-out action, the market was finally met with some bad headlines last week, and more important, bad reactions to that news—including today, we’ve seen three of four days of greater than 40 new lows, while our Cabot Tides is now on the fence, with most indexes nosing below their 50-day lines. As for individual stocks, it’s not a complete disaster, but there’s no doubt more are losing steam.
A big factor in our view right now is, once again, interest rates. Many Treasury rates have been nudging higher since February, and so far in April, that move has accelerated in a huge way—the 10-year Treasury, for instance, is up 0.42% just since the start of the month.
Big picture, the odds remain strong the market will be higher months down the road, and, frankly, a strong snapback (say, if the Middle East tensions calm down) could be very bullish, as we’re finally seeing the fear level rise and there are many solid setups out there.
However, we always go with what’s in front of us, and given the continued weakening action, we continue to advise playing things a bit carefully here. In terms of action, a lot depends on where you stand in your portfolio.
In the Model Portfolio, we already have 28% in cash, so we’re not needing to sell wholesale, but we are cutting back a bit further today.
First, we’re going to sell our half-sized position in Celsius (CELH)—the timing on the buy was unfortunate, right ahead of the reworking of the Pepsi deal, which changed perception just as the market started to weaken. Still, it is what it is, so we’ll cut the loss on our small position and hold the cash. SELL
We’re also going to take partial profits in PulteGroup (PHM)—we don’t have a huge gain, but shares never really roared ahead after their early-year pullback, and now PHM is obviously under the gun with higher rates. We’ll sell one-third and hold the rest. SELL ONE-THIRD, HOLD THE REST
Those moves will boost our cash position to something near 36%, which we’re OK with for now. From here, we’ll take it as it comes—paring back further if need be, but also willing to buy if this morphs into a news-driven (inflation and Middle East) shakeout that gives way to a fresh upmove.
Don’t hesitate to email me directly at mike@cabotwealth.com with any questions.
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