WHAT TO DO NOW: The market mostly remains in the middle, but we’ve seen a continued slow bleed of late—defensive stocks are perking up, financial stocks are testing their lows and growth stocks are sagging, with more fading below support and failing to bounce. We’re not selling wholesale given our big cash position and the fact that many of our stocks act well, but today we are going to cut bait on our half-sized stake in Allegro Microsystems (ALGM), which continues to give ground following Tesla’s disappointing quarter last week. The sale will leave us with around 55% in cash.
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The major indexes are in the red this morning, though not to a giant degree—as of 10:30 am, the S&P 500 is off 0.8% and the Nasdaq is off 1.0%.
In last week’s issue, we wrote that what the market needed was really a big positive, but while it’s been just a few days since then, we’re seeing the opposite, with more sluggishness from the market, and especially growth stocks, while financial stocks sag again (regional banks are testing their lows after First Republic’s quarterly report last night) and defensive stocks (XLP, etc.) pick up steam.
Don’t get us wrong—we haven’t seen any sea change in the evidence, which mostly remains stuck in the middle, with some growth stocks acting just fine, others hitting potholes (today it was cybersecurity stocks, some of which had been holding well) and plenty of rotation every couple of weeks. But with more names dipping below support, we remain overall cautious and will prune positions where necessary.
Today, that means ditching our half-sized stake in Allegro Micro (ALGM), which is another name with a great story, numbers and a powerful blastoff—but which has nevertheless come under pressure (along with many chip stocks) after Tesla’s report last week and has continued to slide. Maybe it bounces, but our loss is growing and, of course, the environment isn’t supportive. We’ll cut the loss here and hold the cash. SELL ALGM
Going forward, we’ll see how it goes—we still have one small position (Shift4) that’s iffy, though we also have three other names that hit new closing highs yesterday (WING, ASO, ONON). And we’re still watching a bunch of growth stocks that are set up well as they head into their quarterly reports.
Translation: We advise caution here, but we’re also remaining flexible and keeping an open mind should the market change character.
Don’t hesitate to email me directly at mike@cabotwealth.com with any questions.
