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Growth Investor
Helping Investors Build Wealth Since 1970

August 19, 2021

Near the close today, the Dow was off 50 points, the Nasdaq was up 23 points, with both finding solid support after a weak open.

Clear

WHAT TO DO NOW: The sellers are gaining some traction here, first with growth stocks (many of which have retreated to key support) and then with the broad market (Cabot Tides back to neutral). Still, with 30% in cash, we have no changes tonight, as most of our stocks are holding well, though we have one problem child (DVN) that’s on a very tight leash.

Current Market Environment
Near the close today, the Dow was off 50 points, the Nasdaq was up 23 points, with both finding solid support after a weak open.

Last week, we started to see some market rotation out of growth and into the broad market, and this week, not only has the selling in growth continued, but it’s spread to the broad market—the Cabot Tides are back to neutral, though some indexes (like the S&P 600 SmallCap) are approaching multi-month lows and longer-term (200-day line) support.

More important to us is the action of growth stocks, and there, the action has grown increasingly iffy—growth-y indexes and funds (IWO, ARKK) are below their 200-day lines, and many leading (or potential leading) growth titles have chopped lower into key support, be it 50-day lines or tops of prior bases, etc. Bigger picture, the chop factor is still in full force, with names being rotated into and out of relentlessly.

Of course, this is why we’ve been careful not to floor the accelerator—if you’re heavily invested, you probably have some stocks that are cracking, in which case you should take action. But with 30%-ish in cash in the Model Portfolio, we’re not pining for more, and frankly, while the action remains uber-tedious, none of the stocks we have are acting terribly. In fact, most are holding support, and a couple are still near their highs.

The problem child is Devon Energy (DVN), which, despite huge cash flow, is being yanked lower again as oil prices sink. We’re holding tonight, but it’s on the tightest of leashes—any more weakness and we’ll be forced to cut bait.

Model Portfolio
Asana (ASAN) has been all over the place, but it continues to hold up impressively above its 25-day line despite the wobbles in growth stocks and the overall market. Earnings, which are coming September 1, will be key, and we wouldn’t rule out another dip ahead of that report (especially in the environment remains iffy), but so far ASAN remains one of the more resilient names in the market. We’ll stay on Buy a Half. BUY A HALF

Cloudflare (NET) has chopped lower of late, with the good-sized convertible offering combining with the environment to bring in the sellers. But the damage has been limited, as shares found support near their 25-day line today (near 117). Encouragingly, before this week, NET had advanced an incredible 13 of 14 weeks since the May low, which is the type of persistent buying that’s both rare (especially nowadays) and generally portends good things. We’re aiming to fill out our position soon but want to see growth stocks find support first. For now, then, we’ll stick with our Buy a Half rating. BUY A HALF

Despite the repeated assurances that huge payouts are coming down the road, Devon Energy (DVN) continues to get tossed around by energy prices. To be fair, they have been weak—oil has dipped to $63 while natural gas is around $3.80—but even at those or lower levels, DVN’s yield is likely to be huge. Still, the rally into the 50-day line was soundly rejected, and today the stock tested its old lows. Basically, DVN is back in the same position as it was a couple of weeks ago—if it bounces from here, great, but any more weakness will have us cutting bait. Hold for now. HOLD

DocuSign (DOCU) is one of many liquid growth stocks that has pulled back to key support, testing its 50-day line (near 286 and rising) in recent days. Now, big picture, the stock has done a lot more chopping sideways than retreating, holding the vast majority of its June-July advance. If the sellers really come out of the woodwork from here, we’ll go to Hold, but until proven otherwise, we see DOCU as a leader of this attempted upmove. If you own some, hang on, and if not, you can take a swing at it here. BUY

Growth stocks began pulling in soon after our purchase of Dynatrace (DT), so it’s not surprising the stock is off a bit since then. But, really, we think it’s holding up well, bouncing a bit off its 50-day line (now nearing 61) and remains mostly “under control,” with reasonable moves even when growth stocks are going haywire. And that makes sense—management recently said it’s actually seeing less competition in the multi-cloud, huge-enterprise deployments that its platform is perfect for. We’re not taking anything for granted, but so far, DT’s uptrend is intact, and its unique offering promises rapid and reliable growth for a long time to come. BUY

Five Below (FIVE) has hit some turbulence of late, but that’s nothing unusual given its strong breakout and follow-through of late, not to mention the market. Like some other recent breakouts, the relative performance (RP) line has yet to confirm, which is a bit of a worry, and in this environment, another dip (as we’ve seen with FND; see below) isn’t out of the question. But it’s clear the stock has changed character, there should be solid support on any dips and, if anything, the long-term growth profile is better than ever as the firm’s e-commerce operation has improved and some heavy investments (in new distribution centers, etc.) are winding down. BUY

Floor & Décor (FND) is one of the poster children for this environment, with a long, multi-month consolidation, a strong breakout for a couple of weeks … and now a sharp pullback, partially due to its own earnings report two weeks ago (everything looked fine, but margins could be crimped for a bit due to supply chain issues) and partially due to Home Depot’s dud two days ago. It’s not pleasant, but it’s not yet abnormal, with a lot of support under here. We’re not complacent, but we’re staying on Buy, thinking a rebound is more likely than not. BUY

ProShares Ultra S&P 500 Fund (SSO) is like a lot of regular stocks, with a sharp pullback in recent days down close to support (the 50-day line is near 122). A break from here could have us taking partial profits, but you know the drill by now—the trend remains up, and until that changes we’ll stay positive on SSO. If you don’t own any, you can grab shares on this dip. BUY

Watch List
Bill.com (BILL 205): we go back and forth with BILL, but there’s no denying the recent strength and the huge, longer-term story.

Carvana (CVNA 349): CVNA has pulled into its 25-day line during the past week, which is completely normal action. Business here is accelerating wildly.

Dexcom (DXCM 505): DXCM’s two-week, post-earnings rest looks good to us; more wiggles are possible, but the upcoming earnings re-acceleration is exciting.

ZoomInfo (ZI 60): It’s volatile for sure, but ZI is holding near its breakout point despite two good-sized share offerings. The stock has all the characteristics of a big winner if growth stocks kick into gear.

That’s it for now. You’ll receive your next issue of Cabot Growth Investor next Thursday, August 26. As always, we’ll send a Special Bulletin should we have any changes before then.

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