WHAT TO DO NOW: Remain optimistic, but continue to take it day by day. The green light from the Cabot Tides remains in effect, which, combined with our solidly bullish Cabot Trend Lines, tell us to lean bullish. From here, we’re still looking for the market and leading growth stocks to follow through to the upside before doing more buying. Tonight, we have no changes in the Model Portfolio, where we’re holding about 30% in cash.
The markets rebounded from yesterday’s correction today and finished with modest gains. At the close, the Dow was up 63 points and the Nasdaq gained 47 points.
The overall tenor of the market remains positive. While we’ve seen some potholes among individual stocks and a couple of major indexes, a bit of weakness isn’t abnormal given the market’s recent run.
Right now, our Cabot Tides buy signal is still clearly in effect, with all the major indexes holding above their lower moving averages. Our Cabot Trend Lines are also still bullish, though our Two-Second Indicator continues to tell us the broad market isn’t quite healthy yet.
From this point, it’s simply a matter of monitoring the major indexes and leading stocks. If we see upside follow through, we’ll be looking to get heavily invested. But if that doesn’t happen, we’ll stand pat, or, if the buy signal fails and stocks break down, raise cash again.
Tonight, though, we’ll stand pat with our eight stocks and a cash position of around 30%.
Model Portfolio
After tightening up for a couple of weeks just north of 70 (and near its 50-day line), Five Below (FIVE 75) has begun to perk up. We can’t say for sure it’s up and away for the stock from here, but our main thought is that FIVE’s longer-term path of least resistance is up due to its relatively recent breakout (from a five-year base in October/November), its lack of abnormal selling pressure and its sterling growth story. A push below 70 would probably have us moving to Hold, with a drop into the lower 60s a sign that the major uptrend is in doubt. Right here, though, FIVE is just 6% off its high. We’ll stay on Buy. BUY.
Grubhub (GRUB 103) continues to hang around the century mark, which we consider normal after the stock’s big run from October through March. Fundamentally, the story continues to get better—Grubhub inked a delivery deal with Jack in the Box for hundreds of locations across the U.S., as well as integrating Grubhub’s point-of-sale system into Jack in the Box’s in-house system, allowing operators to manage all orders (in-house and delivery) from one system. A couple of strong-volume up days could signal the major uptrend is resuming; for now we’ll just stay on Hold. HOLD.
Nutanix (NTNX 57) ran from a low of 48 two weeks ago to a high of 60 before shaking and baking in recent days. A break of the 48 to 50 area would be a red flag, but right now this looks like a buyable pullback. During the company’s industry conference last week, it announced several new products, including software that helps further automate database operations; a platform that lets firms manage their security and spending across different cloud environments; and an application-centric security product that protects against threats not detected by perimeter security products. If you don’t own any, you can buy some around here. But keep new positions small because earnings are due out next week (May 24). BUY.
Okta (OKTA 49) was somewhat extended when we bought the stock last week, but that’s our usual m.o. when coming out of a market correction. Our experience is the stocks that look “too high” are usually your leaders, and if they break down, chances are the stocks at better entry points will break down along with the leaders. As for OKTA, it had a sharp shakeout on Monday, but overall remains in great shape; it could rest a bit longer but we think the stock remains a solid buy here or on dips of a point or two. BUY.
PayPal (PYPL 78) may have turned the corner—it had three legs down to its correction (like the market as a whole) with a shakeout below its 200-day line two weeks ago, before spiking up nearly 10 points. That said, the stock has still etched a series of lower highs in recent months, so we’re staying on Hold. Analysts have been nudging up their estimates of late (earnings estimated to rise 23% this year, 21% next, with free cash flow even better). HOLD.
Proofpoint (PFPT 123) has now etched a series of higher highs (124, 127, 130) and higher lows (111, 115, 120) since early March. Admittedly, the repeated fierce pullbacks aren’t ideal, but PFPT has held its 50-day line throughout and volume on the recent dip was minor. We’re fine grabbing some shares here if you don’t own any. BUY.
Shake Shack (SHAK 59) has now paused for six days near its post-earnings gap high, and could easily pause longer. But the huge blastoff from the stock, the massive store expansion plan (more than 30% this year alone!) and the enormous potential for longer-term growth (a five-fold increase in company-operated restaurants) means the next major move is likely up. BUY.
Like many growth stocks, Splunk (SPLK 115) took a hit on Monday, but in context (shares had just run from 96 to 118 in two weeks), the dip was reasonable. The real test is going to come on earnings (May 24)—a positive reaction would reinforce the view that the next leg up has begun, but we’ll have to see how it goes. Just going with the evidence today, though, SPLK is in fine shape, so we’ll stay on Buy, but the usual caveats apply; keep new positions small since earnings are out next week. BUY.
Watch List
Alibaba (BABA 198): BABA is setting up well near the top of its base and continues to show signs that its multi-month rest period is over.
Axon Enterprise (AAXN 54): AAXN has dipped due to a share offering, which may put in a near-term top and lead to a potential solid entry point during the next couple of weeks.
Continental Resources (CLR 68) or WPX Energy (WPX 19): We’re leaning toward CLR when comparing energy stocks because of its rapid growth, liquidity and its stock’s move to all-time highs in recent weeks. Either way, we think CLR, WPX and others look to be in the early stages of new advances.
Etsy (ETSY 29): ETSY has pulled in since a great quarterly report last week, but it’s still holding around its 50-day line and hasn’t shown any abnormal action.
Spotify (SPOT 161): SPOT has been all over the place in recent days, but taking a step back, shares are near the top of a seven-week IPO base.
That’s it for now. You’ll receive your next issue of Cabot Growth Investor next Wednesday, and, as always, we’ll send a Special Bulletin should we have any changes before then.
