WHAT TO DO NOW: Continue to piece your way into leading stocks showing power—while also pulling any weeds out of your portfolio. In the Model Portfolio, we’re going to make two moves today: First, selling our stake in Noble (NE), which remains weak; on the flip side, we’ll fill out our position in Pulte Homes (PHM) by adding another half-sized position (5% of the account). The combination will still be in the mid-30% range. We may do a little more buying soon, but near-term, the market and some leaders are hitting a little turbulence, so we’ll just make these two changes today and go from there.
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The market is modestly higher this morning, with the S&P 500 and Nasdaq up 0.2%.
The overall weight of the evidence remains bullish: The market’s long-term and intermediate-term trends point up; our Two-Second Indicator is bullish, with the number of new lows well contained; our Aggression Index remains positive; and the intermediate-term trend of interest rates remains down, too.
Now, short term, there are some signs that the market may be in for a few wobbles—the fact that junk stocks have been doing generally well is one (this typically is a sign of short-term enthusiasm), and we’re also seeing some rotation back and forth, resulting in a little day-to-day hecticness. We wouldn’t be surprised if some bumpiness/discomfort emerges during the next couple of weeks, especially as a lot of the world’s worries have seemed to be forgotten of late.
We’re not overemphasizing the short-term outlook, though it does have us putting money to work in stocks that are acting well in a step-by-step fashion—while keeping an eye on current holdings, ditching any that can’t keep up.
Today, that means we’re making three changes.
The first is letting go of our remaining shares of Noble (NE), which has been unable to get off its knees. Eventually, Noble and other drillers are bound to have a good run, but right now perception is clearly on the outs. SELL NE
Second, we’ll quickly fill out our position in Pulte Homes (PHM). One of the reasons we added “only” a half-sized stake last week was that peer Toll Brothers (TOL) was set to report earnings this week—but that report (last night) and conference call (this morning) were just fine, so we’ll fill out our PHM stake by adding another 5% position. We’ll use an initial loss limit on the total position around 80 (give or take). BUY ANOTHER HALF OF PHM
We are also keeping an eye on DraftKings (DKNG), which has fallen sharply and on decent volume of late—we are watching it closely to see if the competition bugaboo (from ESPN) is biting. So far, though, the retreat is still normal, so we’re staying on Buy, but we want to see some support appear soon.
We’ll have more details on all our stocks in Thursday’s issue. Don’t hesitate to email me directly at mike@cabotwealth.com with any questions.
