Housekeeping: We’re sending a brief update today ahead of the long weekend—our offices will be closed Friday, but we’ll be back at it per usual come next Monday. Have a happy, healthy and safe Thanksgiving!
WHAT TO DO NOW: Hold firm, at least for now. Not much has changed with our viewpoint of the market—our Cabot Tides remain positive, but our Trend Lines and Two-Second Indicator are bearish, and there’s no doubt growth stocks continue to struggle, whether looking at indicators (our Aggression Index is testing new lows) or just watching individual stocks. With all that said, given our 80% cash hoard, we could put a bit more money to work if the market holds up for another few sessions, but we’re not in a rush to do any big buying until the environment for growth stocks truly kicks into gear. We have no changes tonight.
Current Market Environment
As we mentioned up top, not much has changed with the environment—our Cabot Tides are still positive, and we do take that seriously, but that’s about the only thing pointing in the right direction, as the long-term trend (Cabot Trend Lines), broad market (Two-Second Indicator) and growth stocks (seen either via our Aggression Index or just watching any individual stocks) are all neutral to negative.
To be fair, we do like the fact that the market has quieted down some, with its average daily range over the past 10 days falling to the lowest level since Labor Day, not long after the summer peak. It’s obviously not a primary indicator, but if the calmness continues, it would be a sign the weak hands have left the building.
Even so, right now, it’s hard to ignore the action of growth stocks, many of which are still getting yanked lower even as the indexes are quiet. Because of that, we’re standing pat again tonight as we head into the long weekend—but given our giant cash position, we’d likely put another small slug of money to work (two or three half-sized positions type of thing, possibly including averaging up on a name or two we already own) if the market can hold itself together and growth stocks can show any sort of strength.
Thus, no changes for now as we head into turkey and football, but we’ll be in touch early next week if we have any changes should the market (and growth stocks) make another run.
Model Portfolio
Albemarle (ALB) has stabilized a bit this week, holding in the 280 area after its failed breakout. Near-term, the downmove certainly isn’t pretty, though shares are back in a solid area of support. Interestingly, peer Sociedad Quimica (the world’s second largest lithium producer) recently said it expects lithium demand and pricing to remain buoyant for a while to come. We don’t have a limitless leash, but we’re OK holding our half-sized stake in ALB here and giving it a chance to rebound. HOLD
Enphase Energy (ENPH) has been battling with resistance in the 315 to 320 area in recent weeks, with three forays up there since late October, each time rejected as the sell-on-strength pattern continues. But ENPH has also refused to budge much and is again attacking that area—the more attempts, the greater the chance the sellers will lose control. The firm has been busy on the news front, though not with anything overly meaningful—just the normal flotsam and jetsam about expanding deployments of their microinverters and battery systems here and there. We obviously think the story has legs, so a decisive breakout (and not an immediate reversal) could have us averaging up. For now, we’ll hold onto our half-sized stake, but we’re OK nibbling here or on dips if you’re not yet in. BUY A HALF
Halozyme (HALO) had a big breakout after earnings (including some follow through) and has been cool as a cucumber since then, holding its gains. Yesterday, Argenx submitted an application for the Enhanze version of its Vyvgart drug (it looks like the new standard treatment of generalized myasthenia gravis, which causes muscles to weaken); the normal version of the drug is off to a hot start ($130 million of revenue in Q3, and it was just approved a year ago, with the launch ramping up), which bodes well for the Enhanze version (decision likely by March next year). We’ll stay on Buy a Half. BUY A HALF
Wingstop (WING) has been pulling back of late, but we think its action is solid—shares are still north of the 25-day line (near 153) and volume has been very light on the dip, a sharp contrast to the wild ups and downs it was seeing in August-October. It’s not likely to be a rocket shot, but the path of least resistance is up and we’re close to filling out our position. If you don’t own any, we’re fine grabbing some on this dip. BUY A HALF
Watch List
Academy Sports (ASO): ASO has been hectic, but it bounced back beautifully after the Target-related dip, with a positive report from peer Dick’s (DKS) helping the cause yesterday; shares are now knocking on the door of new high ground. The firm will report its own quarterly results on December 7.
Arista Networks (ANET): ANET has been hesitating near resistance in the 130-135 area, but it really hasn’t been able to pull in at all, which we view as a plus. Earnings estimates continue to be revised higher as the huge cloud operators gobble up Arista’s offerings.
Axon Enterprises (AXON): AXON looks great, with both an earnings gap and solid upside follow through during the past couple of weeks. We don’t want to chase it, but a couple weeks of rest or some sort of shakeout would be interesting.
Chesapeake Energy (CHK): Natural gas prices had a big correction from August into late October, but CHK held firm, likely because of its amazing cash flow profile (breakeven is less than $2.50!)—and now that prices are percolating again, CHK is threatening its old highs in the mid-100s.
Dexcom (DXCM): DXCM, like some growth stocks, could be changing character—after wild moves in the past year, shares have pulled in properly to their 25-day line. Of course, maybe the pullback keeps going, but a good day or two in the near future would be tempting.
Insulet (PODD): It’s a similar story with Insulet, which has grudgingly given up ground of late—as with DXCM, a strong show of support could be a sign the rest period is over.
That’s it for now. You’ll receive your next issue of Cabot Growth Investor next Thursday, December 1. As always, we’ll send a Special Bulletin should we have any changes before then.
