WHAT TO DO NOW: The news this past weekend that the U.S. and China have slashed tariffs sent the market soaring yesterday. Of course, there are still headwinds out there (Cabot Trend Lines not yet positive, relatively few new highs among growth stocks), and we wouldn’t be surprised to see a pullback now that the “good” news is out.
But given the Cabot Tides’ green light last Friday, the many secondary positives (poor sentiment, Three Day Thrust) and the improved action, we’re extending our line: We’re going to quickly average up on GE Aerospace (GE) by adding another half-sized (5% of the portfolio) position, and will start new half-sized stakes in ProShares Ultra S&P 500 Fund (SSO), Toast (TOST) and Uber (UBER). That will leave us with 50% in cash, which gives us cushion should the market hit turbulence but also gets us into many strong situations. Details below.
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Yesterday’s big trade-related upmove comes on the heels the Cabot Tides’ green light from the previous Friday, as well as numerous secondary positives—the panic selling in early April certainly set the stage for good things, while the continued negative sentiment (Investors Intelligence was still showing more bearish advisors than bullish advisors as of last week) and the Three Day Thrust signal from April 24 all bode well.
At the same time, it’s important to remember our Cabot Trend Lines are not yet positive and, probably more important, many growth stocks are still seeing selling on strength (often near their prior highs), as most of the action is in beaten-down names. Near-term, too, some selling is possible now that this batch of “good news” is out.
Even so, there’s no question the top-down evidence continues to improve, so we’ll put more money to work today: We’ll average up in GE Aerospace (GE), adding another 5% position. We started small here just a couple of days ago, but we like the risk/reward in this area, with a loss limit on the total position in the mid-190s.
We’ll start a half-sized position (again, 5% of the portfolio) in the ProShares Ultra S&P 500 Fund (SSO), which moves twice the S&P each day on a percentage basis. It’s near-term extended, but if this is the start of a bullish phase then obviously the market can go a lot higher. We’ll use an initial loss limit near 77, which would coincide with a Tides reversal.
We’ll start a half-sized stake in Toast (TOST), which is known as a leading cloud payments leader for restaurants, but its platform is really a one-stop-shop for all of a restaurant’s operational needs, and Toast’s move into some newer verticals (food and beverage retailers, international and enterprises (it inked Applebee’s and TopGolf contracts in Q1) is off to a good start. Shares gapped up on Friday near the top of a big consolidation, and we’ll use a looser stop in the mid-30s.
And we’ll also buy a half-sized stake in Uber (UBER), which we think has a great big-picture setup on the chart (it’s starting to break out from a year-long rest) and a fundamental story that continues to crank ahead. We’ll use a looser leash on this one to start, with a loss limit in the mid-70s.
Obviously, if we do see a near-term market dip, these names will likely retrench—but we still have 50% in cash, which provides cushion, and starting with half-sized stakes allows us to give things some wiggle room. Clearly, though, given the action, we’re optimistic these names can do well, especially if we’re starting a fresh bull phase in the market.
From here, we’ll take it as it comes—further strength (especially in our holdings) will have us quickly extending our line, though retrenchment will probably have us holding our cash and monitoring key levels.
Don’t hesitate to email me directly (mike@cabotwealth.com) if you have any questions.
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