January 18, 2024

WHAT TO DO NOW: Remain bullish, but keep your feet on the ground. January has lived up to its billing, with plenty of volatility—right now, we’re seeing lots of weakness in the broad market and even among some glamour funds, while our primary indicators and leading growth stocks are still acting well. At this point we’re taking things on a stock-by-stock basis, trimming here and there but holding most or all of our winners. Today, we’re going to book partial profits in Nutanix (NTNX), selling one-third and holding the rest, which will leave us with around 29% in cash.

Current Market Environment

Today, the major indexes are higher though the broad market continues to struggle—as of 12:30 p.m. ET, the S&P 500 is up 0.2% and the Nasdaq is up 0.8%.

January has pretty much been according to script—which means it’s been topsy-turvy, with a painful first week, followed by a nice snapback last week, with some sloppy action and renewed Fed worries so far this week. Here’s where we stand.

For the intermediate term, the vast majority of evidence continues to point up, especially looking at the primary evidence: Our Cabot Trend Lines and Cabot Tides are solidly positive, and the action of leading stocks has been solid—yes, there has been a little iffy action, but there’s far more good than bad out there.

That said, there are a couple of things that, while not outright negative, bear watching. First is the broad market, which is underperforming yet again after a nice end to the year—partly thanks to interest rates, which are still trending lower but have definitely seen a solid bounce. Indeed, today was the third straight plus-40 reading from our Two-Second Indicator, and the number of new highs on the Nasdaq has dried up in a big way.

Then there are some of the aggressive funds we keep an eye on—things like ARKK and IPO aren’t just below their 50-day lines, they’ve taken huge hits so far this year (down 13% and 9%, respectively).

As usual, we’re taking the evidence at face value, which means (a) the overall uptrend is intact, including for the top leading growth stocks, of which we think we own a few, but (b) the market is getting divergent, and with earnings season ramping up on the heels of the November/December run, we’re content to keep some dry powder on the sideline and see how things play out near-term.

So far this month, we’ve trimmed two stocks (DKNG and, yesterday, DUOL), and we placed our half position of UWM on Hold yesterday as well. And tonight, we’re trimming a bit more, though this time because of positive action—we’ll sell one-third of our stake in Nutanix (NTNX), booking partial profits and holding the rest.

That’s not to say we’re eager to raise more cash, though. We have a couple of names on our watch list that are approaching tempting entry levels, and we also could average up on one of our names (ESTC)—but, tonight, our only move is to trim NTNX, which will leave us with around 29% in cash. Details below.

Model Portfolio

Arista Networks (ANET) zoomed to new highs last week and got stretched above its moving averages (the 25-day line is down at 239), so this week’s choppiness isn’t abnormal. Of course, if we start to see some wild up-down-up-down action with no real progress, that could be a sign of distribution—but at this point, the uptrend looks good, if a bit stretched. Hold on if you own some, and if you want in, target a shakeout of a few points (like we saw yesterday). BUY

CrowdStrike (CRWD) is in a similar boat as ANET, getting stretched to the upside last week before some hiccups so far this week. Also, we would note the stock did show some minor “exuberance” signs last week, including three straight gaps higher, something that often leads to some weakness. Of course, the main trend here is fine for both the stock and business, but as with many names, we’re half-expecting further near-term wobbles. If you own some, just sit tight—if you don’t, you can consider buying a small position on dips of five or 10 points. BUY A HALF

DraftKings (DKNG) is symptomatic of what we’re seeing in January—in the first week of the year, shares dove below the 50-day line and gave back all of their post-earnings gains from November, and last week it couldn’t get off its knees even as growth stocks did. But this week, DKNG has rallied hard, bolstered by an analyst report this morning that said ESPN’s new offering isn’t gaining revenue share, increasing the odds that DraftKings and FanDuel will basically remain the leaders over time. The rebound is obviously encouraging, but we’ll stay on Hold and see whether the stock can hold the move—or if more volatility is in store. HOLD

We cut back on Duolingo (DUOL) yesterday, as the stock sliced its 50-day line on heavy volume, selling half our stake. As always, we hope the sale is a “mistake” and that our remaining shares go to the moon—but we want to go with the evidence and not against it, which means paring back on names showing real weakness and holding onto most or all of our top performers. DUOL isn’t completely broken, but the action of the past four weeks is a yellow flag. SOLD HALF, HOLDING THE REST

Elastic (ESTC) looks great, roaring back from a couple of bad days to start the year to nose out to new price highs this morning (though the RP line remains a bit shy of its prior peak). If this was two months ago, we’d buy more today without hesitation—and, frankly, if you really wanted to add, we wouldn’t argue with it. But given the choppy situation of late (including the return of some selling on strength), we’ll stand pat tonight and see how ESTC handles itself after the upmove of the past few days; a couple of days of calm trading could have us filling out our position. Tonight, though, we’ll stick with a Buy a Half rating. BUY A HALF

Nutanix (NTNX) looks amazing, with some M&A rumors last week (which we discussed in the issue) and a couple of bullish analyst notes this week fueling a big advance. Big picture, this strength and the underlying story bode well—we think the stock could be a new emerging blue chip of sorts if all goes well. That said, shares have had a great run, have had a lot of good news and are now sticking straight up in the air. Thus, we’ll take partial profits here, selling one-third of our stake and giving our remaining shares some rope. SELL ONE THIRD, HOLD THE REST

ProShares Russell 2000 Fund (UWM) has been a dud thus far, with the Russell 2000 down more than 5% on the month. Now, not to sound like a broken record, but it is January, and some sort of rotation (possibly out of some extended growth names and into the broad market) could come. Don’t get us wrong, though, we’re not just going to hold and hope—we downgraded our half-sized stake yesterday and want to see a bounce soon or we’ll cut the loss. HOLD HALF

Interest rates are beginning to be a bugaboo again for the broad market, which has capped PulteGroup (PHM) of late, with the 105 to 106 area proving to be a wall in recent weeks. Even so, while that may lead to some retrenchment, we haven’t seen any of that yet, with shares giving up no ground and with the weekly chart showing a super-tight five-week rest period. We’re not ruling out a wobble here, especially if rates rise further, but we continue to think the next big move is up. BUY

Shift4 (FOUR) saw some selling on strength last Friday, but it’s only pulled back into its 25-day line and remains poised to get going if the broad market kicks into gear. We bought a half-sized stake last week and we’ll give it room to maneuver here. BUY A HALF

Uber (UBER) is acting just as it “should,” with a strong, persistent move into December, some tightness near year-end, a lower-volume dip to the 10-week line and a quick snapback to marginal new highs. If the market remains in good shape, we’re optimistic Uber is a “new” liquid leader that can keep going higher—near-term, though, a lot will depend on whether January has another pothole in store for growth stocks. We’ll stick with the same advice: Hold on if you’re in, and if not, aim for dips of three or four points. BUY

Watch List

Celsius (CELH): CELH has a history of big runs followed by multi-month rest periods, and it’s following that script of late—and with shares perking up since late December, it may be starting its next advance.

KKR (KKR): The struggles of the broad market this year haven’t hurt KKR, which is trading very tight just a few points below its December highs. It’s approaching a high-odds entry if the market remains intact.

Eli Lilly (LLY) and Novo Nordisk (NVO): Both LLY and NVO have perked up this year, though their relative performance (RP) lines are still lagging a bit, so we’re still waiting.

Expedia (EXPE): EXPE isn’t a true growth stock, but we think the stock acts right, we think the cash flow story here is hard to beat and, as a side bonus, it would provide the portfolio a bit of diversification away from tech titles.

GitLab (GTLB): GTLB is a name we like—it’s new, plays into the technology consolidation theme (firms want to standardize on platforms instead of managing dozens of different apps), has rapid and reliable growth (both sales and earnings) and showed unusual strength on its earnings gap (nearly 10x volume). Shares are holding firm the past month.

Neurocrine Biosciences (NBIX): If the late-year upmove in biotech/medical names turns out to be a real trend, we think NBIX can do very well, with a current blockbuster product that’s driving sales and earnings higher, as well as a new likely approval (likely early 2025) of another drug that most think will eventually top $1 billion in sales. Shares act very well, hitting new highs this week.

That’s it for now. You’ll receive your next issue of Cabot Growth Investor next Thursday, January 25. As always, we’ll send a Special Bulletin should we have any changes before then.