WHAT TO DO NOW: As we’ll write about in tomorrow’s issue, we are seeing some improvement in the top-down evidence, including our Two-Second Indicator. But potential leading stocks remain hit-or-miss, with many still hitting air pockets. In the Model Portfolio, two of our names have taken hits after releasing sour guidance for 2023—both Dexcom (DXCM) and especially Halozyme (HALO) have taken hits, and we’re going to cut bait on both half-sized positions today. We’ll likely put a bit of money back to work tomorrow given the top-down evidence and our giant cash position
As of 10:45 a.m. ET, the Dow is up 42 points and the Nasdaq is up 79 points.
We’ll write more about this tomorrow, but the overall market (top-down evidence) is starting to show a few encouraging signs—our Cabot Tides are back to neutral (could turn positive if the rally continues) and our Two-Second Indicator looks very good, with tame readings since the start of the year. We’re also monitoring the market’s underlying breadth, which has shown some powerful action in the past several sessions (the 2-to-1 blastoff indicator could be in play, but we’ll see).
That said, among potential leaders, it’s still a mixed bag: Many are doing OK (up and down action), while some are starting to push ahead, but there are just as many (if not more) that are hitting potholes (especially in the medical/biotech area), including two in the Model Portfolio.
The first is Dexcom (DXCM), which released OK guidance for 2023 at the JP Morgan conference this week—revenues up 15% to 20%, which was a bit below expectations. While shares haven’t imploded, they’ve fallen off on growing volume and it looks like the last two months will now be resistance. Our loss isn’t huge and it’s just a half-sized stake, but we think there are better places to look. SELL
As for Halozyme (HALO), it frankly released awful guidance today, with the revenue and earnings outlook coming in well under Wall Street’s estimates. Part of that is timing (milestone payments shifting into 2024), but even the royalty guidance was so-so at best. The stock is getting nailed today, so much so that it’s taken back nearly all of its huge breakout move from November. HALO may bounce but we’re going to cut bait today on our half-sized position. SELL
We never had much invested in the market to begin with, but these moves will leave us with something like 90% in cash, which is too large given the top-down evidence—though growth stocks remain mostly a meat grinder, with strength not being sustained.
All in all, we’ll put some money back to work soon (possibly in tomorrow’s issue), but until we see more sustained strength among growth names (less rotation and potholes), we’ll go slow and look to build (buying more and averaging up) if/when we get some traction.
Don’t hesitate to email me directly at email@example.com with any questions in the meantime.