Cabot Growth Investor Issue: April 17, 2025

Secondary Positives, but Primary Evidence Still Negative

The six-and-a-half-week plunge from the late-February highs to last week’s low was a doozy, taking the S&P 500 down as much as 21% and the Nasdaq down 27% (using intraday prices) from their peaks before the decent bounce we’ve seen during the past week and a half. And, near-term at least, we think the odds are solid (not overwhelming, but solid) that last Monday’s low can be something the market can work off of for a while, if not longer.

The reason: When looking at a variety of secondary pieces of evidence, the drop was enough to bring some true, once-every-few-years extremes—extremes that typically show up near the bottoms of selloffs.

One example comes from our own Two-Second Indicator—at the end of the recent tariff-induced plunge, we saw two straight days (April 4 and April 7) of over 1,000 new lows on the NYSE and Nasdaq, a classic sign of panic selling. Also on the oversold front, at the bottom we saw less than 5% of the NYSE stocks above their 50-day line; the prior instances of this metric being so depressed were 2022, 2020, 2011 and 2008, all occurring near major low areas.

Then there’s sentiment, with the Investors Intelligence survey showing the fewest bullish advisors since 2008, and with the Bank of America survey showing a sudden drop in risk-on activity, falling to one of the lowest levels of the past 25 years (chart shown below). Throw in the fact that the reason for the drop is very obvious—everyone is well aware of the tariff story—and there certainly seem to be a lot of investors that have already de-risked.

However, as has been seen in many big declines over time, oversold can often become more oversold, and sentiment can always get more pessimistic. That’s why we trade off the primary evidence, which can only turn positive if we see buyers return in a real way—which they’ve yet to do. Our Cabot Tides turned negative near the start of March, our Cabot Trend Lines followed two weeks later, and both are pointing firmly south today, with the trends of the vast majority of stocks in the same position.

When you put it all together, our rough thought right now is that last week’s panic low should hold for a while—and if all goes well, could prove to be the low of this downturn. Plus, given some of the panic-type readings, we’re thinking the market will be nicely higher from here when looking out nine or 12 months.

That said, as we write later in this issue, even if that proves to be true, the odds also favor some sort of bottom-building process going forward, which could include a dip to (or possibly below) the recent low at some point as big investors reposition their portfolios and, frankly, as more investors that are still holding out hope throw in the towel.

What to Do Now

Until the trends of the market turn up and some leadership gets going, we’re content to let everyone else fight it out and deal with the crazy volatility and headline-driven action each day. We advise preserving most of your capital (and confidence!) by staying mostly on the sideline while we diligently working on our watch list. That doesn’t rule out a small move or two in the week or two ahead (if the market continues to stabilize), but tonight we’ll once again sit tight, holding our big (86%) cash position while we patiently wait for the bottom to be etched.

Model Portfolio Update

The Model Portfolio was 58% in cash the day after the recent market top (in the issue that was sent out February 20), had 66% a week later and 78% a week after that, so while not unscathed, we’ve been able to hold most of our big gains we earned last year—we’re up more than 50% since the start of last year, compared to 13% or so for the S&P 500.

Obviously, with our cash position up into the upper 80% range, our next big move is going to be on the buy side—but as we write about later in this issue, the odds favor the market needing more time to build a bottom, so we’re continuing to remain patient and keeping the vast majority of our cash on the sideline.

That said, with a low in place that the market should be able to work off of, we’re not opposed to some nibbling around the edges, especially given that many stocks are starting to show relative strength. For instance, if the market can shake off the Nvidia-induced selling seen this week, we could nibble on a couple of potential new leaders. That said, any major buying would have to wait until at least our Cabot Tides turned bullish and we saw a rash of new leadership take off on the upside—if that happens, we’ll be ready, but dealing with the here and now, we remain mostly on the sideline.

CURRENT RECOMMENDATIONS

Argenx (ARGX)—Argenx received some good news last week—the FDA officially approved a pre-filled syringe version of Vyvgart, which gives the patient the option of administering the drug at home. While not unexpected, the approval should be a growth driver for Vyvgart, especially as heading into a doctor’s office or infusion center to take the drug every week or two can be cumbersome, effectively opening up the market to a larger market. (Possibly as a result of the approval, we’ve seen earnings estimates tick higher a bit more, with $12.11 per share expected this year and $20.04 next.) Shares did pop on the news from their lows, and while ARGX ran into some resistance at its downtrending 10-week line, it’s still up decently during another down week for the market. Moreover, last week saw the heaviest weekly volume since December 2023 as shares rallied—combined with the fact that shares are just 12% off their summit, it’s looking like big investors are supporting shares on weakness. We’ll continue to hold our small stake, as ARGX is certainly acting like a potential leader of the next advance. HOLD A HALF

Flutter Entertainment (FLUT)—Of our three remaining positions, FLUT is the worst performer, though we’d say it’s pretty much on par with most growth stocks—it slid from 300 to 200 (round numbers) and quickly recouped 40% of that decline (when it spiked on the tariff delay news) before sloughing off a bit this week. One small positive here is the firm’s ongoing share buyback program, with $300 million scheduled to be bought back in the second quarter. Also intriguing is one note from an analyst who actually thinks online sports betting could be relatively recession resistant given its ease of use (accessible on a phone, etc.), the small bet amounts by most players and the likely cutbacks in other (bigger ticket) spending that will take place. Of course, we’ll have to see how it goes—long term, we have a lot of confidence the sports betting and iGaming (online casino) markets will continue to grow in the U.S. and elsewhere, but the company is not the stock, so we want FLUT to hold above its lows and, eventually, attack resistance in the 240 to 250 area, especially if the market bounces in the days ahead. For now, we’ll continue to hang on to see if the climactic selling last week cleared out the sellers. HOLD

Palantir (PLTR)—There’s still a good amount of overhead (potential selling) on PLTR’s chart, but there’s no question it’s been showing relative strength, with consistent support near 80 (it has dipped below that area a few times but found buyers soon after) and, this week, a test of the March highs before backing off with the Nasdaq. On the news front, it sounds like Citigroup inked a deal in recent months with Palantir for its AI platform, which counts as another big fish that has signed up in the U.S. market; U.S. commercial revenue soared 64% in Q4, while new contract value was up 134% and remaining deal was up 99% from a year ago. Of course, the quarterly report is coming up on May 5—analysts see sales up 36% and earnings of 13 cents per share up 62%), but the outlook and the stock’s reaction will be key. All told, we like the stock’s resilience, and the longer PLTR can hold up, the greater the chance it will have another good-sized run when the market rights itself. For now, we’re content to hold what we have and see how it goes. HOLD

Watch List

• DoorDash (DASH 182): DASH remains in relatively solid shape, with a normal-looking double-bottom base thus far. The fact that shares had a big run in the months prior does up the odds that there’s still some pent-up selling out there, but there’s no question the story, numbers and chart are all looking tidy here. Earnings are out May 7.
• GE Aerospace (GE 183): GE is 14% off its highs (not bad), and some other aerospace names are holding their own, too. Last week’s support volume was the largest since April of last year, a good sign big players were buying the dip. Earnings are due April 22.
• GeneDX (WGS 96): WGS had a big shakeout at the market lows, but it’s shown solid tennis ball action since, running back up to the century mark. The firm just bought an AI outfit that it thinks will bolster its overall offering, allowing clients to use its labs or this new firm’s AI interpretation platform. Earnings are due April 30.
• Guardant Health (GH 45): GH’s growth outlook this year is good-not-great (20%-ish top-line growth, continued red ink), but the stock is acting like those forecasts will prove conservative, with shares hitting a higher low in April and holding above their moving averages this week. The Shield colorectal cancer blood test could be big.
• Insulet (PODD 247): PODD hasn’t bounced all that well in recent days, which is something to watch, but it’s still in overall good shape as sales of its Omnipod 5 device shouldn’t be affected by all the uncertainties out there. Earnings are out May 8.
• Life Time Holdings (LTH 31): LTH is one of the few names that looks ready to get going right quick if a new uptrend gets underway soon. See more below.
• Penumbra (PEN 280): PEN has mostly been a cool customer, now eight weeks into a tidy launching pad. The firm’s various blood clot removal devices (powered by its CAVT technology) are still early-ish in the process of taking share in the U.S. and elsewhere. Earnings are due April 23.
• Rubrik (RBRK 62): It’s been sloppy (falling from 80 to 51, rallying back to 76, then falling to 48 before bouncing back), but we continue to watch RBRK as its new cybersecurity story (recovery, not just prevention) seems to be gaining a lot of traction. Sales growth has been accelerating, too.
• TG Therapeutics (TGTX 38): TGTX continues to act like it wants to head meaningfully higher if/when the market gets going. Reports out this week suggest TG’s Briumvi treatment for relapsing MS is gaining share from competitors due to an easier and simpler dosing process, not to mention top-notch results.

Other Stocks of Interest

Marex (MRX 38)—Never would we think to be writing about a Bull Market stock (a firm whose fortunes rely on trading activity and asset prices) during this downturn, but Marex seems to be a unique situation: The company is global financial services platform (headquartered in Britain), providing a lot of behind-the-scenes offerings that more than 5,000 active clients use across a few dozen exchanges worldwide. Specifically, the firm provides execution and clearing services, which combined make up more than 70% of revenues that come in through commissions and interest income; Marex also acts as a market maker here and there and offers hedging solutions, especially for those in the commodity markets. In fact, a lot of the firm’s operations are pointed toward commodities trading (more than 60% of revenue comes from these asset classes) where there’s less competition (commercial and investment banks are retrenching, while small firms can’t match Marex’s scale and technology) and yet the long-term trend of volumes continues to increase as volatility does the same. And, while not the key driver, M&A is a help here, with a few bolt-on acquisitions over time and one bigger buyout (of a big commodity player), too. All told, Marex has been steadily taking share, leading to an excellent record of growth during the past decade (profit up each of the past 10 years), and that shows no sign of slowing down—in Q4, operating profit lifted 53% from the year before, and at its Investor Day earlier this month, the top brass said Q1 should see that metric up about 40% from a year ago; free cash flow is also larger than earnings here, coming in north of $4 per share last year. Despite its long history, MRX only came public a year ago, and after three months of gyrating, embarked on a very persistent uptrend that took the stock to 40 in February. The initial correction was sharp, but MRX has been acting great since, shrugging off the market’s plunge last week, and even waving off a share offering (from closely-held shares, no dilution) this week. The only issue here is trading volume—it’s thin for our tastes—but we’re keeping an eye on MRX to see if it grows up from here. It’s an intriguing small-cap name.

Life Time Holdings (LTH 31)—We wrote about Life Time a couple of months ago, right as the market was topping out and beginning its slide—and yet this stock is basically at the same price it was back then, which says something. A lot of that resilience has to do with the underlying story, while the Q4 report (released a week after our last write-up) reaffirmed the company should do well no matter what happens with the economy. The firm is a growing player in the fitness sector, with a national presence and 866,000 members as of year-end 2024, but while a nice gym and equipment are certainly part of the offering, its locations are often more country club-like, with excellent pools (and waterslides!), spas, saunas, pickleball, yoga, kids programs and tons of personalized fitness and wellness/nutrition coaching, too. (In-center revenue from these and other coaching add-ons are growing slightly faster than overall sales.) As you’d imagine, this isn’t meant for the guy or gal looking to pinch pennies—the average monthly membership is $200 (and rising as some price hikes work their way through the system), and the firm is even branching out into real estate, creating some campuses in certain areas (that surround the Life Time center) that have seen great rental rates and retention. (There’s also a free digital workout subscription and a young holistic health business.) All of it is working, with not just solid sales (up 17% to 19% each of the past four quarters) and EBITDA (up 29% in Q4 with a margin of nearly 27%) growth, but also the highest levels of retention it’s ever seen, record visits per member and its largest new opening pipeline—it aims to open 10 to 12 new locations this year (on top of the 179 already open) and at least that many in 2026 and 2027. The top brass sees growth slowing a bit this year, but sales (up 13%) and EBITDA (up 17%) should continue to perk up, and odds favor those will prove conservative. As mentioned earlier, LTH is just a few points from new high ground after an excellent snapback in recent days. Earnings are due May 8.

ADMA Biologics (ADMA 21)—ADMA Biologics is another mid-sized biotech player (sales of $427 million last year; market cap of $5.0 billion) that’s thriving mainly thanks to its new and improved immunoglobulin (antibody) treatments, which is a big and growing market ($20 billion by 2030) with lots of large players involved. The firm thinks its plasma collection (through 10 facilities in the U.S., as well as via third party supply deals) system and its patented immune-technology (including the screening and ID’ing of “hyperimmune” plasma donors and proprietary testing of that plasma to create tailored plasma pools that are most effective) give it a big advantage in the field, with more effective treatments. (A new production process that should boost output by 20% given the same plasma volumes could get mid-year FDA approval, too.) The main target is what’s known as primary immunodeficiency (PI), which is a term for a broad collection of genetic disorders that cause a poor immune system—ADMA has two drugs that play into this market, but its Asceniv offering (given via IV every few weeks and targeted for those that aren’t being helped by standard treatments) looks like the big draw, with next to no side effects and top-notch results. Uptake has been quick, but the company is just scratching the surface; it thinks it has a U.S. market of 25,000 patients, but as of earlier this year it’s served just 3% of that, which is a big reason why the top brass thinks Asceniv can eventually be a $1 billion-plus seller and should continue to show growth through 2035. There are two other drugs on the market, as well as a very high-potential compound being studied (for a disease related to strep) that management thinks could sell $400 million annually down the road. In the meantime, though, ADMA is focused on Asceniv, which makes up more than half of sales and is driving growth higher: Sales boomed 65% last year while EBITDA more than quadrupled, and while growth will slow, sales should expand by mid-teens this year and 23% next while EBITDA expands at 35% rates—and the firm almost always guides conservatively. The stock had a huge run into late 2024, then suffered a deep 43% correction, but ADMA has been recouping ground since the Q4 report on good volume. It’s lower priced and sure to be volatile, but we see big potential here as earnings boom.

Bottoms are (Usually) a Process, Not an Event …

Both of the books by and about Jesse Livermore—How to Trade in Stocks and Reminiscences of a Stock Operator (both great ones for your coming summertime reading list)—have countless goodies for investors that want to sharpen their skills. However, one of the biggest lessons we got from our readings of these titles is what Livermore calls the time element of trading.

The idea is that everything in the market takes time—yes, of course, the market or a stcok can spike on some news here and there, but intermediate- to longer-term moves take time both to set up, and then to play out. There are many reasons, including supply and demand (it takes time for big investors to change their minds and reposition their portfolio) and fundamentals themselves (earnings prospects and interest rates usually change gradually over time, causing the market to gradually discount a different future).

This time element is on our minds these days because of the market’s recent action—after a downside panic by many measures, it’s likely we’ve hit a short-term low that the market can work off of. However, bottoms are usually a process, not an event, which means some more time is likely needed even if the market has seen its lows for the correction.

That process is usually seen in some sort of retest action: As a very general rule, a climactic low will lead to a bounce but is often tested at least one time between four and 10 weeks afterwards. If successful, the retest usually will result in a new bull phase, and just as important, allows the strongest stocks to separate from the pack and burst to new highs soon after the turn. (You’ll also often see positive divergences from our Two-Second Indicator during the retest(s), though that’s a topic for another day.)

1998 was a classic example, and it’s also the precedent that’s closest to our current situation: The Nasdaq melted down into its September low, rallied back into its 50-day line, then fell back and briefly undercut the low in October (27 trading days later). It turned around from there and embarked on the last part of the rally of the multi-year internet bubble run.

More recently we had the meltdown in 2011, caused by U.S. debt default fears and a double dip recession in Europe. The mini-crash into early August saw a super-hectic bounce for a month (right to the 50-day line) before the Nasdaq retested the low eight weeks later (39 trading days)—though, after a sharp rally, there were two more mini-retests (one in November and one in December). All told, about four months of bottom building.

Even the big Nasdaq bear market of 2022 saw the lows retested, with the initial low in mid-October, a quick retest three weeks later, with another retest coming 10 weeks after the initial low, right at year-end.

As always, the market doesn’t operate in exact time frames, so again, that four-to-10-week range for one (or more) retests is very rough—but the point is that most declines like the current on (that is, very sharp, usually 20% or more) end up having a bottom that’s takes some time, as opposed to a straight-up event.

… Unless We See Some Blastoff Indicators Flash Green

“Okay, Mike, that sounds good—but you said ‘most declines’ have a bottoming process. What about the others, where there’s a V bottom?” Yes, those happen as well, though they often come after a truly Earth-shattering event (think 9/11 or the pandemic), and you’ll often see the ensuing rally trigger one of the key Blastoff Indicators we follow.

As the name suggests, these Blastoff Indicators highlight times when the market has become “hyper-overbought” (our term), which contrary to what most believe, usually occurs early in a new, sustained uptrend that lasts for months, if not years.

There are three main ones we track closely: The 2-to-1 Blastoff Indicator (NYSE advances top declines by an average of 2-to-1 over a 10-day period), the 90% Blastoff Indicator (90% of NYSE stocks close above their 50-day lines) and the Three Day Thrust (three straight days of 1.5%-plus gains in the S&P 500), all of which have pristine track records when looking out six to 12 months.

If the current envionment is going to morph into a V bottom, we’d expect one of these to flash somewhere along the way higher … often coinciding with and confirming the action of our primary trend-following measures. That’s usually (not always!) how this works, given that a V bottom is caused by a sudden change in the overall environment, often because the uncertainty of the day (in this case tariffs) gets cleared up.

There are many examples, but how about the biggest bear market of our generation, the 2008-09 Great Recession? While the broad market was showing big positive divergences, the S&P 500 nosedived into March before turning sharply up, with the 2-to-1 Blastoff Indicator flashing on March 23, 2009, which was a few days before our Cabot Tides turned bullish.

More recently, the market had a horrid fourth quarter of 2018, as the initial U.S.-China trade war was starting to erupt; the Nasdaq imploded 24% from its highs in September through late December. But there was no retest at all, with the 2-to-1 signal flashing on January 9, 2019, a couple of weeks before the Tides joined the party, kicking off a solid run into March 2020.

Putting it all together, history tells us the market is likely to need some time here given the damage done to many stocks and the fact that even our long-term Cabot Trend Lines are negative. But it’s important to remain flexible, so whether it’s a bottom-building process or a rarer V-bottom blastoff, our arsenal of indicators will have us ready to pounce when a fresh bull phase gets underway.

Cabot Market Timing Indicators

After hitting a panic low last Monday (April 7), the market has bounced decently, and if a V bottom develops, we’ll be ready for it. But we always go with the weight of the evidence, and right now that evidence is negative, with our trend-following indicators pointed down and most stocks in the early-ish stages of repairing the damage. Some small buys here and there are fine, but we continue to advise a defensive stance overall.

Cabot Trend Lines – Bearish
Our Cabot Trend Lines continue to point down, as both the S&P 500 (by 8%) and Nasdaq (by 12%) are still well below their 35-week moving averages. Of course, not every Trend Lines signal lasts a long time—like any trend-following measure, it can occasionally quickly reverse itself—but just going with the here and now, the larger-, longer-term market trend clearly isn’t supportive for the bulls, which is a big reason to stay very close to shore.

Cabot Tides – Bearish
Our Cabot Tides are also bearish, with all five indexes (including the NYSE Composite, shown here) below both of their moving averages. It’s always possible the early-April puke will mark the low and stocks recover from here (possibly if good news hits the wires on tariffs, etc.), but so far in this bounce phase, the indexes haven’t been able to touch their downtrending 25-day lines, so there’s obviously a lot of work still left to do. With both the intermediate- and longer-term trend going south, we still favor cash being your largest position.

Two-Second Indicator – Negative
Our Two-Second Indicator showed some real panic at the bottom, with two straight 1,000-plus readings before the number of new lows dried up nicely in recent days. That’s a good first step, and we won’t rule out that the selling scared out the remaining weak hands—but we’d need to see many days of sub-40 readings to think the broad market has truly returned to health. For now, the broad market is still under pressure.

The next Cabot Growth Investor issue will be published on May 1, 2025.

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