WHAT TO DO NOW: Most of the evidence is still bullish, both for the overall market and for leading stocks, but as the January wobbles have continued, some air pockets are emerging, with today being a tough day for growth stocks. Today we’re going to sell half of Duolingo (DUOL), which is breaking support and has given back its post-earnings gains, while placing our half-sized stake of ProShares Russell 2000 Fund (UWM) on Hold. Our cash position will be around 26%.
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Growth stocks are getting hit hard today, though this does come after a good run last week. As of Noon ET, the S&P 500 is off 0.6%, the Nasdaq is down 0.9% but growth stocks and funds are off much more than that.
Most of the evidence remains positive both from a top-down perspective (trends of the indexes) and bottom-up (action of most individual stocks), though we are starting to see some yellow flags—today is the second straight day of 40-plus new lows, for instance, and after good runs, the wheat is separating from the chaff for many stocks (including growth titles).
Overall, the odds continue to favor higher prices down the road, but near term, we expect continued volatile action. Happily, despite today’s whack, we think we own some real leaders and are giving them a chance to bob and weave, but we’re not holding and hoping with stocks that are showing clear weakness.
Today, that means we’re selling half of our stake in Duolingo (DUOL), which is breaking down today on big volume, falling not just below the 50-day line but giving back its gains following its earnings gap. Given that it’s January (and all the volatility it brings), we’re not willing to give up on the name completely, especially with its intraday bounce—but we’ll respect the action by selling half our position today and holding the rest to see if it can right itself. SELL HALF OF DUOL, HOLD THE REST
We’re also placing our stake in ProShares Russell 2000 Fund (UWM) on Hold—the timing of our small buy was off, and the fund has headed straight down this year … though it’s now sitting right at support. We’ll go to Hold and keep it on a tight leash. HOLD UWM
We’re not ruling out adding something new, but we’re focused more on managing what we have while looking for solid entry points (near support, with some tightness and big-volume support) for new buying. For now, we’re content to let things shake out a bit more.
We’ll have more details in tomorrow’s full update. Don’t hesitate to email me directly at mike@cabotwealth.com with any questions.
