July 6, 2023

WHAT TO DO NOW: Remain optimistic but keep an open mind. At this point, our market timing indicators remain bullish and we’re seeing little abnormal action among leading stocks—that said, the Fed/interest rate situation refuses to go away, and near term, some more shaking of the tree is certainly possible to raise the fear level. Tonight, we have no new buys or sells, but we’ll place Inspire Medical (INSP) and Monday.com (MNDY) on Hold and see how things progress. Our cash position will remain in the 30% range.

Current Market Environment

The indexes and especially leading stocks are taking good-sized hits today; as of 3:15 pm EST, the S&P 500 and Nasdaq were both down around 0.8%, though leaders were off much more on average.

Near term, we’re seeing some headwinds, the biggest one of which is interest rates, which are backing up quite a bit—the two-year note yield just hit a new high for the cycle (highest since 2007), while longer-dated rates are challenging multi-month peaks. Believe it or not, such action isn’t all that unusual a couple of months after a market low, but with the Fed still hawkish, we’ll have to see how it goes.

Then there’s the broad market, which remains positive but is having a hard time making any progress. And finally, it’s fair to say that the latest retreat for the Nasdaq was very tame and brief (just six days), so having another mini-leg-down (which could be starting here) might be needed to raise the fear level given the prior run-ups in many names.

Now, with all that said, nothing has really changed with the intermediate- and longer-term primary evidence. When it comes to our market timing indicators, all remain positive, even the “weaker” broad market measures. And for individual leading stocks, there continues to be next to no abnormal action out there—yes, there are a few names that have stalled out, but breakdowns have been scarce.

When you blend it all together, the odds continue to favor this being a normal rest period/shake-the-tree situation that will give way to higher prices. That said, the odds also favor that there will be some more wobbles in the near term as the market discounts the interest rate factor and some Fed uncertainty.

Thus, right now, we’re not in a rush to continue plowing in—for the first time in a few weeks, we have no new buys tonight, as we want to see how this latest bout of weakness plays out. That said, while we are placing Inspire Medical (INSP) and Monday.com (MNDY) on Hold, we’re sitting tight with our collection of stocks, as well as our 30%-ish cash position.

If the correction really gains steam, we won’t hesitate to chop some dead wood from the portfolio, and conversely, if the pullback is contained, we could do some buying (many attractive entry points are likely to appear in this case). Tonight, we think a little patience is best—we’ll move MNDY and INSP to Hold but have no other changes.

Model Portfolio

Celsius (CELH) has had trouble of late with the 150 area, but it’s hard to really poke holes at the stock, as there’s been no volume selling at all and the stock held its 25-day line today. As with everything else, we do think some shakeout-type action is possible near-term if the market worsens, but so far, CELH is resilient and its unique, Pepsi-driven growth story should be insulated from economic uncertainty. BUY

DoubleVerify (DV) continues to act very well, coming down a bit this week but remaining within a few dimes of new closing highs. The firm has been quiet on the news front for the past couple of weeks (when it announced ad verification for Facebook and Instagram Reels), but we continue to think that big investors are taking stakes in this new industry—indeed, early data shows that 483 funds owned DV at the end of June, up from 410 and 364 in March and December, respectively. We’ll stay on Buy. BUY

We nearly averaged up on DraftKings (DKNG) a week ago but are obviously glad we didn’t as its test of resistance led to another pullback. That said, there’s nothing unusual here—like a lot of names, it’s lost some ground but remains near its 25-day line even after today’s drop. There’s key support in the 23 (prior lows) to 24 (a bit below the 50-day line) area, so a dive through that would tell us the stock isn’t really a leader and have us cutting bait—but right here, we’re looking at this action as a normal dip. BUY A HALF

Inspire Medical (INSP) has fallen off sharply this week on very light trade, which in and of itself isn’t a bad thing. That said, we’re moving the stock to Hold because this action comes after the tepid action of recent weeks that saw shares refuse to show any upside power (the relative performance (RP) line never confirmed the marginal new price highs in recent weeks)—sort of like what we saw during the past year and a half. Now, we’re not overdoing it here; INSP is still OK overall and has a rare growth story, so we’re still willing to give it some wiggle room. But we think moving to Hold and watching the action closely makes sense. HOLD

Monday.com (MNDY) was added near the market highs, and when you combine that with the stock’s massive volatility, we’re eyeing a good-sized loss—and that’s enough for us to go to Hold at this point. To be honest, though, we don’t see the action as abnormal: If anything, the price/volume patterns have been solid, and a couple of good up days could actually present a very tempting buying opportunity. As usual, we’ll let the stock tell the tale—a continued dip into the low 150s would have us cutting bait on our small position, but if MNDY can Hold up, we’re happy to give it a chance. HOLD

ProShares Ultra S&P 500 Fund (SSO) has shown a lot of volatility over the past two-plus weeks, but all of it has been north of the 25-day line, so we’re fine with it—as mentioned above, when you look at the primary evidence out there, there’s not too much to hang your hat on if you’re a bear. Of course, that doesn’t guarantee anything, but we always want to play the odds, and while we do think SSO and some other indexes could have some more near-term challenges, the odds favor higher prices over time. We’ll stay on Buy. BUY

Shift4 Payments (FOUR) enjoyed a solid (albeit low-volume) four-day rally to finish last week, though it’s reversing some of that move so far this week on more economic fears. A strong rally from here would look very good on the chart—finally rounding out its launching pad. At this point, though, FOUR is basically in the middle of its two-month range, so we’ll stay on Hold and see how it goes. HOLD

Uber’s (UBER) pullback continues, dipping to its 25-day line today like so many other growth titles. The stock has always been affected somewhat by the economic outlook, with fears of a slowdown, so further weakness is certainly possible, but the story, numbers and chart are all pointed higher here—if that changes (a meltdown into the 38 area, for instance), so will we, but we’re holding onto our shares and think new buyers can grab some around here. BUY

Wingstop (WING) rallied right into resistance near 200 and its 50-day line—and was soundly rejected, giving up most of its bounce (unlike, say, FOUR, which is still holding onto more than half of its recent rebound). It’s getting close to the uncle point for WING: We’re holding here but it’s on a very tight leash. HOLD

Watch List

Axcelis Technologies (ACLS): ACLS nosed to new highs last week but has been pulling in with the market this week, tagging the 25-day line today. Another week or two retreat could set up a decent entry point after the stock’s very strong run this year.

Confluent (CFLT): CFLT dipped back to its correction lows this morning, but it’s still in a fairly controlled rest period following a moonshot of sorts in May and early June. We’ll hold off for now because we think the market could have some more shaking and baking in store, but we’re keeping a close eye on CFLT.

HubSpot (HUBS): It’s not the fastest-growing tech stock out there, but HubSpot has that emerging blue-chip feel as one of the big marketing and CRM platform players, especially for small- and mid-sized outfits. Shares are high-priced but have shown solid relative strength all year and have traded very tightly for a few weeks.

MasTec (MTZ): MTZ is another name that’s pretty tempting here, having finally started to pull in after a very persistent and solid-volume advance. Given its business, the stock could be pushed/pulled more by interest rates (and economic fears) than pure growth names, and after 10 weeks up in a row, it’s earned the right to rest for a bit—though we’re not expecting a huge dip if the market hangs in there.

On Holding (ONON): ONON is back on our watch list as the growth story is pristine and shares have marched back near their old highs. The stock likely needs more time, but we think there’s a good chance the next big move is up.

Samsara (IOT): IOT’s recent pullback was a bit too sharp in our view, giving up two-thirds of the prior move, far more than other leaders. That said, we do love the story, and the stock may be growing up (more big players getting involved)—we’re still watching it.

That’s it for now. You’ll receive your next issue of Cabot Growth Investor next Thursday, July 13. As always, we’ll send a Special Bulletin should we have any changes before then.