WHAT TO DO NOW: The market continues to get clobbered as the breakout in interest rates two weeks ago is punishing every nook and corner of the market. We came into this week with a big 55% of the portfolio on the sideline, but that hasn’t completely stopped the bleeding as names are coming unglued. We’re not selling wholesale, especially as some panic is in the air, but we also don’t advise holding and hoping. Today, we’re going to sell one-third of our stake in Noble (NE) and sell our remaining small position in Celsius (CELH), leaving us with a cash position in the low 60% range. Details below.
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The first two days of the week were bad for the indexes and even worse for the broad market, with the selling pressures intensifying as interest rates continue to climb higher. The major indexes are bouncing early today as rates have pulled back, but under the surface, many growth stocks are up marginally or actually down.
Our Cabot Trend Lines are still positive, but that’s about all that’s looking up right now—our Cabot Tides are clearly in the bear camp, the Two-Second Indicator is recording hundreds of new lows every day and nearly 90% of all stocks are south of their 50-day lines, while nearly two-thirds are now under their longer-term 200-day moving averages.
At this point, the decline is very obvious and getting a bit panicky, and with 55% in cash, we’re not forced to sell wholesale; we’re not predicting a bounce, per se, but some sort of strong snapback wouldn’t be unusual soon. Plus, despite awful action yesterday, some of our stocks are still etching higher lows during the past few weeks, a sign of relative strength.
That said, we’re not advising simply holding and hoping either—we’ve obviously done a good amount of selling recently, and today, we have two moves.
First, we’re going to trim our position in Noble (NE) by selling one-third of our stake; it doesn’t look awful, and the big-picture story is very much intact, but everything is getting pulled down by the market and oil stocks are starting to crack. We’ll sell a portion and give the rest of our shares a bit more rope. SELL ONE THIRD, HOLD THE REST
We’re also going to let go of our small remaining position in Celsius (CELH)—we’re not ruling out owning the stock again after the market finds its footing for a while, but the stock’s big run combined with the big recent decline (and follow-through selling yesterday) tells us there’s still downside risk, and plenty of repair work is likely needed even if it does rebound. SELL
That will leave us with a cash position in the low 60% range. We do think some upturn in the market could put more than a few stocks near breakout levels—there’s a decent amount of resilience out there—but with the market still horribly weak, we’ll pare back a bit more and see how things go from here.
We’ll have more thoughts in tomorrow’s (October 5) issue, along with further special bulletins if needed. Don’t hesitate to email me directly at mike@cabotwealth.com with any questions.
