WHAT TO DO NOW: Remain mostly bullish, but for the moment, do a bit more watching than buying. Early January has been very volatile and news-driven, as is usually the case, but the main evidence remains positive. Things are a bit hot and heavy right now, and the day-to-day rotation is extreme—neither are bearish, but we prefer to sit tight for the moment and see if the market and leaders settle down a touch. We have no changes tonight, and we’re holding 19% in cash.
Current Market Environment
The indexes are having another good day today, led by growth stocks this time—as of 3:30pm, the Dow is up 253 points and the Nasdaq is up a big 322 points.
As we wrote during the latter part of December, early January is often like watching Jell-O-on-a-plate, and that’s proven to be true so far this week, with some major crosscurrents during the first couple of days, followed by a wild reaction to the Georgia elections/Presidential certification yesterday and today.
Short-term, more wild action based on Washington, D.C., some key upcoming conferences (including for retail and medical) and earnings season should keep volatility elevated. However, most of our emphasis is on the intermediate- and longer-term picture, and on those fronts, not much has changed—the trends of the major indexes remain up, and while some growth stocks have hiccupped, we haven’t seen any real abnormal action and many surged today.
To be sure, there’s been some rotation going on, especially yesterday, which is something we’re watching given the huge runs in growth stocks and elevated investor sentiment—it’s always possible cyclical stocks are reasserting themselves and growth may need to cool it. Even so, we’re hesitant to draw any major conclusions from just a few days to start the year, and today’s action was excellent.
As for the world’s happenings (protests/riots, Georgia elections, etc.), we wouldn’t get too distracted by them; maybe they cause the market (or leading stocks) to change character, but it’s best to wait for evidence before assuming that. If anything, the uproar has dented sentiment a bit, which is a small plus (investing-wise) in our book.
For now, we’re using the market’s wiggles to fine tune our watchlist a bit; if things settle down, we may put a little more money to work (either a new name, or filling out CRWD or HALO, which we have half positions in). Tonight, though, we’ll again stand pat, waiting a few more days to get a clearer picture of where the money is flowing.
Model Portfolio
CrowdStrike (CRWD) is typical of what we’ve seen with growth stocks over the past few weeks, with a very sharp advance (especially after the SolarWinds breach), a relatively sharp, quick dip, and lots of volatility this week (daily range of 5% or so each of the first three days this week). Some further choppiness could be in the cards (the breakout above 155 came just over a month ago!), but the chart looks fine (25-day line is around 191) and the story remains pristine, with rapid, reliable growth very likely for years to come. Some calm action could have us filling out our position, but we’ll wait on that; if you don’t own any, though, we’re OK buying a half-sized stake (that’s 5% of the Model Portfolio) around here. BUY A HALF.
Five Below (FIVE) has powered to new highs this week after a rough Monday, partially thanks to the buying of all things cyclical (FIVE generally gets lumped into that bucket as it’s a re-opening play of sorts) and optimism about its upcoming presentation at an influential retail conference next Tuesday morning. The breakout here came in early September (about four months ago), which, time-wise, is a bit stretched, but remember, that came after two years of bobbing and weaving, so there likely aren’t a lot of weak hands in there. Long story short, we’re sitting tight, but we’d suggest new buyers aim to enter on dips of a few points. BUY.
Halozyme (HALO) has been mostly sitting around in a tight range (usually a constructive sign when it comes early-ish in a new uptrend) and nearly tagged its 10-week line earlier this week before picking up steam the past couple of days. The company is set to present at the JP Morgan healthcare conference next Wednesday afternoon; we’ll be watching to see if any Q4 tidbits/2021 forecasts are released (or hinted at). We’re close to filling out our position here, but we’ll wait another day or two to see if HALO keeps chopping around or if the next upleg has begun. We do think you can start a half position around here if you’re not yet in. BUY A HALF.
NovoCure (NVCR) is in the fourth week of a very choppy (a couple of roundtrips from 155 to 180) consolidation, meeting up with the 25-day line yesterday before bouncing. Similar to HALO, Novocure will be presenting at JP Morgan’s conference next week (Tuesday morning), and any news could move the stock (especially concerning updates to its clinical program for Optune). In the meantime, we’re simply giving the stock room to maneuver—like many names, we’d prefer to see some tightening action, but either way there’s no question the trend is up. BUY.
After a few weeks of low-volume stalling in the 70 area, Pinterest (PINS) dove to its 50-day line by Monday of this week and it’s begun to bounce—given that this is the stock’s first tag of that key support area, it should find support in and around here. Nothing has changed with our thoughts here fundamentally, and the firm remains all quiet on the news front. It’s a solid risk-reward entry point here if you’re not yet in. BUY.
ProShares Ultra S&P 500 Fund (SSO) tapped its 25-day line on Monday for the second time in three weeks; in fact, at Monday’s lows, the S&P 500 had made no net progress for a month. That may have been the brief rest that refreshed the index, as SSO has popped to new highs during the past two days. We will say that we’ve seen some really extreme readings on the number of new highs (more than 850 total on the NYSE and Nasdaq yesterday!), so further wobbles are possible, but we continue to like the steady advance as well as the renewed strength in many areas (financials, transports, industrials) that make up a chunk of the index. BUY.
Roku (ROKU) pre-announced some Q4 metrics and they were outstanding—the firm estimated that it ended the year with 51.2 million active accounts (up 38% from the prior year), total streaming hours of 17 billion in Q4 (up 55% from a year ago) and the Roku Channel reached U.S. households that had 61.8 million people, double that of a year ago. Bigger picture, Roku said that nearly one-third of U.S. households have now cut the cord, with another 20% or so likely to do so in the next four years. And the stock has liked the news, as ROKU has bounced off its 25-day line and soared back to virgin turf on big volume! Obviously, the action is pristine, though we still think keeping new positions small and/or buying on dips makes sense. BUY.
Twilio (TWLO) is continuing its two-steps-forward, one-step-back advance, with its recent 13% correction being met with strong buying today. (Today’s upmove came on light volume, but the entire pullback was similar.) The stock has gotten a little more analyst love of late, with more coming around to the view that the firm’s positioning at the heart of so many trends (work-from-home, personalized marketing, etc.) will drive rapid growth for many years. If you’re not yet in, this should be a decent risk-reward entry point (you could enter here with a 10% to 12% loss limit)—for our part, we’re just hanging on. BUY.
Uber (UBER) looks very good, as it appears to be getting going from a tight, four-plus-week rest (after a 10-week kiss this week) following its huge-volume blastoff in November. One analyst recently said what we’ve been writing for a while—if all goes well this year (pandemic disappears and economies boom), Uber could be printing money later this year as both Rides and Delivery services surge. (Plus, even if there are some virus-related economic hiccups, Uber should have business support from a further acceleration in the Delivery side of things.) If you’re nit-picking, volume on the past two days of rally have been sub-par, and January is sure to bring more volatility, so we can’t rule out another shakeout, but the path of least resistance remains up. Go ahead and buy some here if you’re not yet in. BUY.
Watch List
Bill.com (BILL 136): We think BILL has finally grown up—any shakeout of a few days (possibly alongside a market pullback) would be tempting.
Farfetch (FTCH 62): FTCH has stalled out for a couple of weeks, which, believe it or not, is the longest rest it’s had since the start of November. A shakeout into the low/mid 50s would be tempting.
Floor & Décor (FND 99): FND has snapped back nicely toward the century mark despite some worries over higher interest rates this week. If possible, we like to have two top-notch cookie-cutter stories in the Model Portfolio, and FND could join FIVE soon if it quiets down.
Spotify (SPOT 332): SPOT is one of those names that hasn’t done anything wrong, but it’s also not exactly showing great strength overall (RP line not much higher than a few months ago)—if that changes, though, we could be interested.
Teladoc (TDOC 228): We wrote about TDOC three weeks ago in the issue, and shares are beginning to perk up. It still has work to do, but it could be ready to get going after an eight-month period of no progress.
That’s it for now. You’ll receive your next issue of Cabot Growth Investor next Wednesday, January 14. As always, we’ll send a Special Bulletin should we have any changes before then.
