WHAT TO DO NOW: Remain defensive. The post-Fed selling has generally continued, erasing the Cabot Tides’ green light and taking many stocks down with it. To be fair, a lot of names are bending but not completely breaking so far, so if the buyers show up, there could still be many names to work with—but the onus is clearly on the bulls. In the Model Portfolio, we continue to hold lots of cash (around three-quarters on the sideline), and we’re placing two of our four stocks on Hold. Details below.
Current Market Environment
After a decent bounce yesterday, the market is coming undone today after a couple of poor earnings reports and a continuation of the general malaise out there. As of 2 pm EST, the Dow is off 739 points, the Nasdaq is down 369 points and many growth stocks are off 3% to 6% or more.
December has a history of being a pretty positive month, but that’s not usually the case in bear years, and that’s looking to be the case again so far—the indexes are all down since the month began, with the post-Fed selling recently driving most indexes to or below their 50-day lines.
You could argue whether our Cabot Tides are negative or whether they’re still on the fence—more important to us is that, at this point, the indicator definitely isn’t positive (our Growth Tides are worse off), which means the intermediate-term uptrend has been damaged, while our Cabot Trend Lines and Two-Second Indicator are still stuck in negative territory. Throw in the fact that big investors still have little appetite for growth stocks (our Aggression Index tagged new lows today) and we continue to advise patience and defense as the sellers remain in control.
Now, we will say that, while the past few days have generally been sour, we haven’t seen a ton of names give up the ghost yet. Maybe that happens in the days ahead, but to this point, most potential leaders and major indexes have “just” come down to the lower end of their ranges that they’ve been etching since late September/early October.
Thus, at this point, we don’t view the past week or two as obliterating all the minor positives that slowly built up in October and November; if the buyers stepped up soon and the market rallied nicely in January, we think there would be more than a few names that could lift from solid launching pads.
But with our market timing indicators giving a thumbs down and next to nothing actually going up, the onus is clearly on the bulls to show up and stop the recent slide.
In the Model Portfolio, we’re still nearly three-quarters in cash, and we’re OK holding onto the four positions we have for the moment. That said, given the reversal of the Tides green light and the general weakness, we’re placing a couple of names (ENPH and WING) on Hold. Big picture, though, the message remains the same as it has been for months: Remain defensive, hold plenty of cash and practice patience as we wait for the sellers to run out of ammo.
Dexcom (DXCM) made a couple of runs at new multi-month highs this month, both of which were rejected, which isn’t surprising—and the stock has slid a few more points. But overall, the stock looks resilient, clinging to its 50-day line and still giving up little of its huge October rally (~80 to 120 on good Medicare and earnings news). And that makes sense, with a business that’s not dependent on the economy, and which should get a boost from the G7 approval and some more opportunities in Japan. Hold on if you own some, and we’re still OK picking up a few shares if you don’t, assuming you already have lots of cash on the sideline. BUY A HALF
Enphase Energy (ENPH) has been hacking around wildly in recent weeks, with its runs at new highs firmly rejected (no surprise) and then big up-and-down action during the past few days, including today’s ugly drop (though so far, the plunge is coming on below-average volume). (Most solar stocks have been following the same path.) Compared to the market, ENPH is still showing relative strength—it’s hanging around its August high (the Nasdaq is down 20% since then!) and its 50-day line (two-thirds of stocks are below)—so we’re not panicking here, but we do think it’s prudent to switch to Hold and see if shares can find some support next week. HOLD
Halozyme (HALO) has stalled out, which is no surprise, but remains in great shape, still perched near its highs and above even its 25-day line. Of course, in this environment, maybe HALO will be the next to get hit, but so far, so good. It doesn’t hurt that shares have gotten some positive vibes from a couple of analysts recently that see a solid, steady earnings upmove getting started now. (One of them sees earnings up 23% next year and another 30% in 2024, reaching $3.63 that year.) We think the stock has a bright future, though we’re not anxious to buy more in this environment. Hold on to your half-sized stake, and if you’re not yet in, you could nibble here or (preferably) on dips. BUY A HALF
Wingstop (WING) has hit the toboggan slide with the market since the Fed last week, nosing below recent support (both price and its 50-day line) as it fills the earnings gap from late October. It’s not fun and we’re not complacent, but we’re willing to give WING some more rope as (a) the overall chart looks OK (near its August high) and (b) the latest slide has come on super-light volume—that’s not an excuse, but it wouldn’t take much buying to boost the stock in our view. Even so, we’ll switch to hold to respect the weakness in the stock and the market and keep a close eye on it going ahead. HOLD
Academy Sports (ASO): ASO has slipped back to its breakout level, which is the norm in a bearish environment. While not ideal, the stock remains in decent shape (above moving averages, etc.) and the story remains just fine.
Arista Networks (ANET): ANET’s recent slippage is more than we’d prefer, though it’s far from a horror show given the October/November action. We’ll keep watching it to see if support arrives.
Axon Enterprises (AXON): AXON got hit on an offering earlier this month but has been very quiet since then, which we take as an encouraging sign given the market’s action. It doesn’t hurt that the firm’s business should be economically resilient given that their main clients are law enforcement agencies and departments.
Celsius (CELH): CELH is hacking around in the mid-100s on light trade, which is fine by us—frankly another couple of weeks (preferably quiet ones) in this area would set up a nice pattern. Fundamentally, nothing has changed our view that the firm’s sales and earnings should catapult as the Pepsi deal matures.
Impinj (PI): Chip stocks have been slapped around, but PI remains in fine shape, having respected its 50-day line. Of course, the business here is really more of an Internet of Things story, with its endpoint ICs and supporting software and devices in huge demand.
Inspire Medical (INSP): INSP is holding up just fine, remaining in a steep near-term uptrend since earnings in early November. A backing-off period is likely (it’s up near resistance and the market stinks), but with the firm’s sleep apnea solution driving rapid growth for years to come, investor perception is changing for the better.
Las Vegas Sands (LVS): Nobody is comfortable investing in China-related equities, but they have been outperforming the market for months. LVS is one of our favorite ways to play that trend—the longer it and peers can hold up, the greater the chance that China’s reversal of Covid Zero policies will lead to a boom year.
Schlumberger (SLB): SLB briefly cracked as oil stocks got nailed, but it’s bounced back impressively. It’s worth watching, and we’d note earnings estimates remain very solid here, with equipment buying likely to be more resilient even with oil in the mid-$70s.
Shift4 (FOUR): We’ve been watching FOUR for over a year now, and it might be finally revealing some bullish intentions during the market’s latest slide—it’s perched near its peak and refusing to give up any ground for the first time in months. We think this payment story is big, and the sales/earnings/earnings estimate numbers are hard to beat.
That’s it for now. You’ll receive your next issue of Cabot Growth Investor next Thursday, December 29. As always, we’ll send a Special Bulletin should we have any changes before then.