WHAT TO DO NOW: The market wobbled today, which put our Cabot Tides back on the fence. As for growth stocks, there’s still wobbly action, but there’s also many names that continue to improve and set up. We’re more optimistic than not, but tonight we’ll stand pat and see how the next few sessions go—ideally, we get a controlled pullback or rest that presents some solid entry points, but if the selling accelerates, we may be forced to prune a name or two. Tonight, we have no changes (~47% in cash), but we’ll be on the horn if that changes in the days ahead.
Current Market Environment
The major indexes got hit today, though damage among growth stocks wasn’t too bad. At day’s end, the Dow was off 260 points while the Nasdaq slid 105 points.
The market took a big hit this morning, which wasn’t totally surprising—things had been a bit too quiet of late, plus there remain a few yellow flags out there in terms of narrowing breadth and the like. Encouragingly, today did see some support show up in many growth names by the close.
Stepping back, our thoughts vary depending on where we’re looking. When it comes to the broad market, we’re not fans of what we see—industrials, financials, transports and the like had giant eight-month runs, decisively broke down and have had trouble getting off their knees. Indeed, today’s market move puts our Cabot Tides back on the fence (you could argue it’s negative, but many indexes are basically in multi-month ranges), with much more weakness from here leading to an outright sell signal.
Growth stocks have been looking better, which is obviously a good thing—we see more good than bad overall, with a bunch of stocks setting up and acting well. That said, there’s still a lot of gyrations, but overall, we like what we see.
Frankly, if the Nasdaq/growth stocks can hold up around here (maybe a bit more giveback but nothing crazy), we think this pullback could produce some solid entry points—not that we’d dive in headfirst with the Cabot Tides on the fence, but another couple of small buys (or current holdings or new additions) could be on tap. However, we also have some stocks close to support, so if today is the start of a deeper retreat, we could be forced to prune a name or two.
Putting it all together, we’re more optimistic than not, but once again tonight, we’re going to stand pat and see how things play out for a couple more sessions—we’re hoping to put a little money to work, but let’s watch to see how leading stocks handle themselves during what amounts to the first test of this rally phase. We have no changes tonight.
Model Portfolio
Cloudflare (NET 109) has had a big, persistent run, so some weakness wouldn’t be surprising to see. But it hasn’t been able to come in and remains in fine shape overall (the 25-day line is way down at 99 and rising quickly). If the market really keels over, all bets are off, but usually the first dip after such a persistent move will find support, so we’re interested in filling out our position if NET can handle itself well in the days ahead. If you own some, hang on, and if you don’t, we’re OK picking up a half-sized stake around here. It’s early, but we’re optimistic NET will be a leader if the Nasdaq and growth stocks hold themselves together. BUY A HALF
Devon Energy (DVN 28) and many energy stocks continue to get tossed around by (a) headlines regarding OPEC and the economy, as well as (b) the weak action in cyclical stocks. Still, it’s hard to argue much has changed fundamentally—even after some retrenchment, oil prices remain north of $70, and natural gas prices have had a nice move (north of $3.50), both of which should lead to higher dividend payouts and greater debt reduction. That said, we’re not going to ignore the stock, which has suffered another leg down in recent days, though it found support at its 50-day line today. Much more weakness could have us changing our tune, but tonight, we’re staying on Buy as DVN has done nothing “wrong,” and energy stocks are usually better buys on dips, especially in this environment. If you don’t own any you can grab shares around here. Earnings are due August 3. BUY
Our thoughts regarding DocuSign (DOCU 289) are very similar to those of NET—we think both look like leaders if the Nasdaq remains healthy, and we’d like to fill out our position as the stock’s inability to pull in much (at least to this point) should be a good sign. You can buy a half-sized position if you don’t own any, but we’ll wait a bit longer to average up until we see if today’s market wobbles (and the weakness in the broad market) spreads to some of the resilient names like DOCU. BUY A HALF
Not surprisingly, Five Below’s (FIVE 189) low-volume rally hit resistance around 200 and has led to a pullback. Obviously, we’d rather see the stock head higher, but nothing has really changed here—fundamentally, business is great and getting better, while the stock is hacking around in a range. We’re not complacent (a break to 175 would be ominous), but right here we advise practicing patience, giving the stock time to gather strength for what we feel will eventually be a new uptrend. HOLD
Floor & Décor (FND 105) hit its head on some tough resistance (in the 110-115 area) and backed off today. Still, we like what we see overall—the correction is likely over, and while there could be some hiccups along the way (we’re not thrilled with the action of some traditional housing-related names), we’re optimistic the next upmove has begun. BUY
Progyny (PGNY 60) has been fighting to hold onto its 50-day line for the past couple of weeks, and today was another stick save on that front. Fundamentally, we see rapid and reliable growth for a long time to come, and chart-wise, the recent pullback, while never fun, has been normal. Hold on if you own some, and if not, this should be a good entry point. BUY A HALF
ProShares Ultra S&P 500 Fund (SSO 121) has been up and down during the past three days, but it’s still in fine shape, holding nicely above its 25-day line (near 117.5). It’s always possible today’s shot across the bow leads to something more menacing, especially given the weak breadth in the market and the big run of late; if the sellers really step up, we’ll take action. But at this point the trend is clearly up and there hasn’t any abnormal action, so we’re not going to overthink it. BUY
Roblox (RBLX 87) tested its 50-day line for the second time in three weeks today, and again it found support. Could the tedious correction be coming to an end? We’re hopeful but need to see more—and we still think a lot will come down to any monthly updates that are released (possibly in the middle of July, though that’s not a certainty) that point to whether (a) user growth continues to slow and (b) whether it’s affecting revenue growth much. (Remember, while users were down 1% sequentially in May, revenues were up 4% from the prior month.) If things go right, we very much believe RBLX can be a good-sized winner given its unique offering, but we’ll let the stock tell the tale. Hold for now. HOLD
Watch List
10x Genomics (TXG 188): TXG had a sharp pullback after a failed breakout attempt, but it’s still hovering less than 10% off its old highs and the story is outstanding. Some calm action would do the stock good.
Asana (ASAN 66): There have been very few new growth stocks that have had sustained runs, but ASAN is one of them, and it’s so far refused to give much back. A further pullback or shakeout would be very tempting.
Bill.com (BILL 189): BILL has always been a bit squirrelly, but it’s set up a nice-looking launching pad and the company has only captured a tiny fraction of its potential market.
CrowdStrike (CRWD 263): We really like CrowdStrike—the stock can be up and down, but in a world where everything is going online and needs to be protected, demand for the firm’s Falcon platform should boom for many years. The stock remains perched near new highs.
Dynatrace (DT 61): DT remains in fine shape, though earnings (due out July 28) are coming up relatively soon.
That’s it for now. You’ll receive your next issue of Cabot Growth Investor next Thursday, July 15. As always, we’ll send a Special Bulletin should we have any changes before then.
