January 19, 2023

WHAT TO DO NOW: Remain cautious but keep your eyes open. The evidence as a whole remains mostly negative, with the long-term trend down, the intermediate-term trend sideways and most stocks struggling to hold breakouts. But we are seeing legitimate strength in the broad market (our Two-Second Indicator remains bullish), which is a clear positive. We’re not going to rush things—we’re still holding around three-quarters in cash—but should the market firm up there could be a lot of opportunities. We have no changes tonight.

Current Market Environment

The market is pulling back again today as economic fears bubble up again. As of 12:30 EST, the Dow is off 212 points, and the Nasdaq is down 108 points.

The market has continued its wild ways in the past week, with some solid strength on Friday and Tuesday before the sellers stepped up their efforts again the past two days as many indexes tested resistance (near the December highs).

All in all, the picture remains mostly the same—our Cabot Tides are still effectively neutral, with the major indexes (and most growth funds) having shown improvement, but after the recent downside, remain rangebound over the past couple of months. And our Cabot Trend Lines are still negative as they approach the one-year mark on the bearish side of the fence.

That said, the broad market continues to be a distinct bright spot, with our Two-Second Indicator looking great (just 8 NYSE new lows yesterday when the Dow was down 600 points; so far today just 12 or so) and last week’s 2-to-1 Blastoff Indicator green light portending positive things.

Overall, we’re definitely cautious, and nobody is going to conclude we’re definitely out of the woods; we’re still seeing lots of selling on strength and growth stocks that are being rejected near resistance, which has been the #1 “tell” of the market’s unhealthiness in the past year. Tonight, we’re holding our three-quarters-ish cash position in the Model Portfolio. That said, we are seeing some legitimate signs out there, especially with the broad market … which usually speaks up before the overall market turns.

Obviously, we’re going to take it as it comes; if this pullback turns into another leg lower, we won’t throw money into the meat grinder. But we’re also not assuming this dip is going to gain steam—right now, we wouldn’t fight it, but a few good days from here (if it happens) could actually produce quite a few opportunities.

Long story short: Be defensive, but keep your eyes peeled should this week’s dip be arrested, and the buyers re-appear. We have no moves tonight, but we’ll be on the horn if that changes.

Model Portfolio

Academy Sports & Outdoors (ASO) has pulled back with the market and with retail stocks, which have been weak after a poor retail sales report yesterday. As with everything, we’ll see how it goes, but ASO is still above support (in the 49 to 50 range) and volume (both up and now down) has been very light since its massive earnings move in early December. Of course, we’re not doubling down here, but we’re fine giving the stock a chance to wiggle around while the market tries to gather strength. Hold on if you own some, and if not, we’re OK with a nibble on this dip. BUY A HALF

ProShares Ultra S&P 500 Fund (SSO) has backed off as well, though again, to this point the drop looks normal. As an aside, when the 2-to-1 Blastoff Indicator flashes green when the S&P 500 is below its 200-day line (as it did this time, by a hair), a dip of 4% or so isn’t uncommon—and we might be in the midst of that. A drop much further than that would call into question the buy signal, though of course, we’re also keying off other things (like the Two-Second Indicator, which remains in great shape). Right now, we’re holding our half-sized stake, and we’re OK buying a little if you’re not yet in, assuming you have plenty of cash on the sideline. BUY A HALF

Shift4 Payments (FOUR) is basically the same story as the two stocks above. Has it fallen off the past two days? Yes. Is it broken? No—in fact, it’s still a few points above its 25-day line. We’ll be watching to see if this is more of a trend knockout-type situation (a sharp pullback after a good run) or something more; near term, further wiggles are likely, but the overall evidence (both chart and fundamentals) remains positive. BUY A HALF

Wingstop (WING), on the other hand, bears watching. We’re glad we didn’t go back to Buy last week as the stock bumped up into resistance near its 50-day line—and as has been the pattern, sellers have appeared and pulled the stock lower. Right now, it’s still about 10 points above the early-year low, so we’re holding on here, but we’d expect the stock to find support soon if all’s still well. HOLD

Watch List

Axon Enterprises (AXON): AXON is now seven weeks into a nice, tidy launching pad, which is part of a longer two-year structure. Earnings are likely out in late February. We like the action and could take a swing at the stock soon.

Celsius (CELH): We love the CELH story, but shares were again rejected by resistance this week, with a lot of selling in the 115 area starting on Tuesday. We’re still watching, but to this point, it’s not tightening up like some other growth names.

Five Below (FIVE): We have two retail names right now so we’re not anxious to plow into another, but Five Below has long had the best cookie-cutter story out there, and seems to be over many challenges of the past couple of years with the underlying growth story back on the track.

Impinj (PI): PI broke out to new highs yesterday on good volume, which is a rarity in this environment. If it can hold the move (as opposed to giving up the ghost) it would obviously be a good sign, especially given the stock’s wild moves. Earnings are due February 8.

Inspire Medical (INSP): Following a persistent rally from October into December, INSP has now tightened up nicely just shy of its all-time highs. The firm’s Q4 preannouncement was excellent (another quarter of 70%-plus sales growth, well ahead of expectations), and a breakout would be very tempting.

Las Vegas Sands (LVS): LVS remains in a firm uptrend, and we think it can do very well going ahead. Near term, the China/reopening story is a bit obvious, so some sort of pullback or rest period is likely—but if it’s well controlled, it should be buyable.

Planet Fitness (PLNT): PLNT continues to look fine, though like many names it’s toying with resistance in this area (a bit above it as of now). Earnings are due February 23.

Schlumberger (SLB): We’re intrigued by a few cyclical names that have shown great power of late, with SLB being one of them. Earnings are due out tomorrow but if it can get through that we would be interested.

That’s it for now. You’ll receive your next issue of Cabot Growth Investor next Thursday, January 26. As always, we’ll send a Special Bulletin should we have any changes before then.