WHAT TO DO NOW: The market’s rally has run into trouble, and while there are more than a few growth stocks that look fine (if not great), air pockets are reappearing in many issues. Today, Nutanix (NTNX), which looked picture-perfect heading into its earnings report, is getting mauled along with most other software stocks. We’re going to sell the rest of our stake today, thinking today’s meltdown after a prolonged run isn’t likely to lead to good things in the intermediate term. We’ll have more details (and likely other changes) in tonight’s issue of Cabot Growth Investor.
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The market is down a bit today, with the big-cap indexes down about 0.5%, but the market’s stance has been weakening—our Cabot Tides are now on the fence and our Two-Second Indicator is also iffy, while sellers are reappearing after most areas hit resistance near their prior highs. All in all, while the rally isn’t broken, it’s certainly taking on water.
We would say that growth stocks are acting better on balance, but it’s extremely mixed—some stocks look fine (if not great), while others are hitting big air pockets on earnings or rotation
Today, we’re seeing software stocks get mauled due to a spate of poorly received earnings reports. Last night, Nutanix (NTNX) reported a decent quarter, though their guidance for the current quarter wasn’t great—and probably just as important, some other software names (especially Salesforce.com) reported poor numbers, leading to a mauling in the sector this morning.
NTNX initially looked down but not horrible, but it opened poorly and has cratered today, diving below its April low. Yes, we still have a decent profit (and already booked some profits earlier), and it’s always possible this ends up being something of a shakeout.
But after a prolonged run with hardly any sustained selling, today’s meltdown in both the stock and the sector makes us think pent-up selling pressures could linger here (even if it does bounce) for a while. Thus, we’re going to sell our stake and take the rest of our profit—mostly thinking there will be better names to own if the market can move higher. SELL
We have our issue tonight, and we’ll likely have more changes then—but for now, we’ll sell our stake in NTNX, take the rest of our gains and hold the cash.
Don’t hesitate to email me directly at mike@cabotwealth.com with any questions.
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