What to Do Now: The market’s overall action is looking better, but we’re still seeing lots of selling on strength (especially near key resistance areas) in potential leading stocks, while buying is mostly focused on the worst performers in recent months, which is the main reason we only tip-toed into the market last week after the Tides turned green. The sell-on-strength action is again being seen in Shockwave (SWAV), which has come under another selling wave and is tripping our mental stop. We’re going to sell our position here, leaving us with 80%-ish in cash; we’ll likely put some of that back to work in the days ahead, but we’ll be selective, looking for names that are able to hold up despite being near their highs.
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The market is pulling in today, though given the rally last week, the action among the indexes is still normal. On the market timing front, the Cabot Tides green light is still in effect, though our Cabot Trend Lines remain bearish, as does our Aggression Index. The Two-Second Indicator did record “only” 35 new lows on Friday, so we’ll see if that continues.
Long story short, big picture, we’re cautiously optimistic—the huge wave of pessimism, the market’s resilience among some bad news of late and the rush higher late last week are all positive signs. The trick is with individual stocks, which remain iffy: We’re continuing to see many names test or poke out above resistance, only to quickly retrench. That was the main reason we only nibbled last week (three new half-sized positions), as for potential leaders, it’s still something of a meat grinder out there. That can change, of course, but until it does, we’re going slow.
Today’s bulletin concerns Shockwave (SWAV), which was hit hard when it tested its highs two weeks ago; hit again after a good Q3 report; and, after a nice bounce, was sold off again last Friday—and today it tripped our mental stop, so we’ll sell our stake. SELL
That sale will push our cash position back toward 80% or so. Given the positive top-down evidence, we’re likely to put some of that to work later this week, but it’s still vital to be selective. For now, we’ll sell SWAV and hold the cash.
