NOTE: We’re sending this a day early since we have many thoughts to share and we are making a couple of moves—so we figured it’s best to give the full update now instead of just a bulletin. We’ll still be monitoring things, of course, and will send special bulletins if need be going forward—and are available to answer any questions if you have them at email@example.com.
WHAT TO DO NOW: After cracking on an intermediate-term basis last week, the market has been unable to find its footing this week despite some steps to secure the banking system. It’s not 2008 out there, and in fact, many growth stocks we own and are watching are still holding up well, but there’s no doubt the selling pressures out there are intense and haven’t let up. Tonight, we’re going to sell one-third of what’s left of our ProShares S&P Fund (SSO) position and our half position in Las Vegas Sands (LVS), which will leave us a cash position of around 66%.
Current Market Environment
Fears of Credit Suisse going under are hitting stocks again today—as of 11:30 a.m. ET, the S&P 500 is down by 1.5% while the Nasdaq is down by 1.0%.
You don’t need us to dive into the current bank run, as you’ve surely read tons of articles or heard hours of talk about it. To us, it’s not the news that counts, but the market’s reaction to the news, and there’s no doubt the reaction has been bearish—our Cabot Tides cracked last week, the Two-Second Indicator is clearly negative and our Cabot Trend Lines might give up its green light by week’s end. Moreover, despite the actions to guarantee deposits and whatnot, the market hasn’t been able to rebound much as financial stocks remain under huge pressure.
We will say that individual stocks have been much more mixed (in a good way). On one hand, the broad market is under pressure; coming into today, just 24% of NYSE and Nasdaq were above their 50-day lines, figures that are down big in recent days. That said, we’re not seeing disintegration in most growth stocks—yes, some have definitely cracked, but many we own or watch are holding well.
In a similar vein, it’s also intriguing/encouraging that our own Aggression Index (Nasdaq vs. consumer staples) is hanging in there, as is the relative performance line of the Nasdaq versus other major indexes (like the S&P and Dow Industrials)—which isn’t what you’d necessarily expect to see in a risk-off meltdown.
Big picture, these sorts of headline-grabbing panics often (not always) occur near the end of bear moves, and over time, it’s likely this mess will get the Federal Reserve off the market’s back, both of which are good to keep in mind.
However, we always go with the here and now, and the selling pressures are intense and the off-the-cliff action in the financials is obviously not good—we added about 20% to our cash position last week (38% to 58%), and today, we’re going to sell one third of what’s left of our ProShares S&P Fund (SSO) position as well as our half-sized stake in Las Vegas Sands (LVS), leaving us with around 66% in cash.
We’re obviously willing to pare back further should things continue to unravel, but we’re also keeping our eyes open to see if many growth stocks can continue holding up.
Academy Sports & Outdoors (ASO) has earnings due tomorrow morning, which will tell the tale. One analyst is bullish, initiating coverage on the firm this week with a positive outlook, but it’ll be about the report and, of course, the market. As it stands now, ASO has held up pretty well, still a bit above its rising 50-day line, and the fundamental story should continue to play out even with some mild economic weakness. With things OK here, we’ll stay on Buy, but of course will be looking at things closely after earnings. BUY
Las Vegas Sands (LVS) was looking good but it decisively cracked its intermediate-term uptrend today, so we’re going to take the modest loss on our half position and hold the cash. To be clear, all that we’ve written about in recent weeks holds true—the firm’s cash flow should soar in the quarters to come as Macau comes back online, and this dive doesn’t break the stock’s big-picture upmove that got moving late last year. Translation: If the market can hang in there, LVS could easily shape up again, and if it does, we could get back in down the road. But in this environment, we have to deal with the here and now, as well as preserve capital. We’ll sell the small-ish stake and hold the cash. SELL
ProShares Ultra S&P 500 Fund (SSO) has continued to slide as financial stocks go over the falls. Like so many things, we don’t see the big picture here as completely negative—heck, the S&P 500 itself is no lower today than it was last May, even though we’ve seen a ton of Fed rate hikes and now a bank panic during that time. (It’s still above its late-December low, too.) Even so, our Cabot Tides and Two-Second Indicator have turned negative, and as we wrote above, our Cabot Trend Lines could see its nascent green light reverse by week’s end. We sold one-third of our position last week, and today, we’re going to sell one-third of what we have left (i.e., if you own 30 shares right now, sell 10 of them). All in all, that will leave us with a little less than half of our stake from a couple of weeks ago, which cuts our reliance on a leveraged long fund while still giving us a small stake should we see a bounce or something more. SELL ANOTHER THIRD, HOLD THE REST
Shift4 Payments (FOUR) remains a relative port in the storm, holding up very well despite the maelstrom. There’s nothing new since last week on the news front, but we’re impressed with the stock’s resilience given that recession fears are clearly seeping into many sectors. Then again, with Wall Street seeing earnings up in the 50% range both this year and next as its payment solutions are widely adopted, Shift4 should be relative rare merchandise for growth-oriented institutional investors. We’re sitting tight. HOLD
Uber (UBER) was sold in a special bulletin last Friday, as the stock started to crack meaningful support. Interestingly, though, shares did bounce back nicely (and are holding up well today) after a favorable court ruling in California that basically says the firm’s drivers can remain (cheaper) contractors instead of (more expensive) employees. If UBER can hold up in this selling storm and pop higher when the bulls reappear, we could always get back in as the underlying cash flow story is for real. But overall, the stock still has a lot of work to do for us to consider that—right here, we’re favoring capital preservation. SOLD
Wingstop (WING) has taken on water, but remains in pretty good shape, nearly 10 points above its 50-day line and holding pretty well this week. Fundamentally, there’s little doubt that the growth story is on track, so if the stock can continue to resist, we’re happy to hold on—and think it can go nicely higher if/when the bulls emerge. HOLD
Allegro Microsystems (ALGM) and Axcelis Technologies (ACLS): Yes, there have been some wobbles, but both of these chip stocks (as well as old leader Nvidia (NVDA), interestingly enough) are holding up very well despite the prior Tesla-related worries (SiC chip demand, etc.) and the market’s meltdown.
Arista Networks (ANET): ANET is another growth stock you’d think would keel over in recent days—but instead, shares actually hit new highs yesterday on big volume (!) as demand for its hyper-fast switches should remain strong for a long time to come.
Axon Enterprises (AXON): AXON has pulled in, but it’s still above its breakout point and all moving averages. Given its unique growth story, AXON is high on our list should the market firm up.
Duolingo (DUOL): DUOL had a coming-out party following its Q4 report, and it’s held firm and tight in recent days, including some big-volume support earlier this week. Simply put, the longer it holds up, the greater the odds it can see much higher prices whenever the market improves.
On Holding (ONON): ONON has been tossed around, but frankly we think the action in recent weeks is solid given its January rally and the market’s selloff. There’s no date yet for earnings, which we’re waiting for—a super-strong reaction could be a go signal if the market is in a decent mood.
Sarepta Therapeutics (SRPT): Bank panic or not, Sarepta is likely to see sales and (in 2024) earnings explode as its new gene treatment for DMD is likely approved in a couple of months. The stock’s huge gap two weeks ago has mostly held up.
That’s it for now. You’ll receive your next issue of Cabot Growth Investor next Thursday, March 23. As always, we’ll send a Special Bulletin should we have any changes before then.
|Stock||No. of Shares||Price Bought||Date Bought||Price on 3/10/23||Profit||Rating|
|Academy Sports & Outdoors (ASO)||3,091||59||1/13/23||60||1%||Buy|
|Las Vegas Sands Corp. (LVS)||1,590||58||2/3/23||53||-9%||Sell|
|ProShares Ultra S&P 500 Fund (SSO)||3,213||49||1/13/23||45||-9%||Sell one-third of remaining|