WHAT TO DO NOW: Remain bullish. The market continues to act well, and while the broad market has been futzing around for nearly a month, our market timing indicators are positive and most leading stocks are in good shape. We could put the rest of our cash to work in the days ahead, preferably on a pullback, but tonight, our only change is restoring our Buy rating on Workday (WDAY). Our cash position remains around 9%.
Current Market Environment
A day after the Fed turned dovish, the market reacted very positively with the major indexes and most growth stocks having great days. When the closing bell rang, the Dow was up 217 points while the Nasdaq had risen 110 points.
Our thoughts on the market are generally unchanged from the past week or two. Both of our trend-following indicators (Cabot Trend Lines and Cabot Tides) are positive, and the action of most leading growth stocks has been solid, with very few breaking down and many spurting to new highs in recent days.
Plus, of course, you have the encouraging background indicators, such as the 2-to-1 and 90% Blastoff signals from January and February (respectively), which have a great track record of forecasting higher markets. Add it up and the odds still favor higher prices when looking weeks and months down the road.
Shorter-term, though, we could go either way. Obviously, the underlying tone of the market remains very solid, but on the other hand, the broad market has been consolidating for the better part of a month, while some growth stocks are sticking straight up in the air and could easily pull in.
All in all, though, our focus is on the intermediate- to longer-term, so we remain bullish. On the buy side, we still favor entering on weakness when possible, and if not, starting with relatively small positions in stocks that are extended to the upside. But overall we’re content to sit tight, let our strong performers work for us and keep relatively tight stops on a couple of laggards we have.
Our only change in the Model Portfolio tonight is that we’re restoring our Buy rating on Workday (WDAY). We could have a couple of more moves in the near future, especially if the market does pull back a bit; we’ll send out a bulletin if we do.
Model Portfolio
Chipotle Mexican Grill (CMG 670) has enjoyed a nice run in recent days, bolstered by a strong market and some kind words from analysts, one of whom said he has great confidence in the firm’s turnaround and thinks the firm’s international opportunity could be big. Taking a step back, we believe CMG’s big run since the market bottom is a real sign of leadership; like many stocks, a pullback or rest is certainly possible (and would probably be healthy), but the action appears more of a kickoff to further longer-term upside after the past few years of down action and bottom building. We’ll stay on Buy, but try to buy on dips of one- or two-dozen points. BUY.
Ciena (CIEN 39) is the closest of all our stocks to being kicked out, as shares were unable to bounce after getting hit on earnings, and yesterday, dipped below their 50-day line. We still believe the fundamental story and potential is very enticing, and, given that the stock ran from 31 to 46 after the market bottom, this dip to the upper 30s isn’t the end of the world. But there’s important support in the 37 area, and the longer CIEN goes without rallying much (in a strong market no less), the more suspect it is. We’ll stay on Hold, but a close below support would probably have us moving on. HOLD.
Exact Sciences (EXAS 92) has continued its topsy-turvy action, with another quick pullback (8% or so) after testing its February highs. Granted, it’s not the most pleasant action, but the stock hasn’t done anything abnormal, the story and numbers are excellent and EXAS isn’t far from new-high ground. A drop all the way to the low 80s would be a red flag, but right now, we think the next big move is up. BUY.
Five Below (FIVE 119) has found support recently as it’s caught a couple of analyst upgrades, but as we wrote last week, the stock’s future is likely going to come down to earnings, which will be released next Wednesday (March 27)—analysts are looking for 19% sales growth and earnings of $1.58 per share, but we think the forecast of same-store sales and earnings growth for this year will be more important. We’re open to anything, but with a big profit and a long correction and consolidation already on the books, we’re holding FIVE and seeing what earnings bring. HOLD.
Okta (OKTA 85) has been pushing higher since its big post-earnings shakeout. Like a few of our holdings, the stock has received some analyst love recently, including one that thinks Okta’s current projections for this year could prove extremely conservative. At this point, our plan with OKTA is straightforward—a dip back into the mid 70s would make the past few weeks look like an intermediate-term top and, thus, have us ditching our half-sized position. But continued strong action (especially a good-volume push into the upper 80s) would probably have us buying another 5% stake to fill out our position. Right now, we’ll stay on Hold and let the stock tell us what to do. HOLD.
Planet Fitness (PLNT 68) has finally paused for breath in the 67-68 area as volume has dried up. The stock could chill out or pull back for a bit, though after the seven-week tight area with a big post-earnings shakeout, we’re not expecting a huge retreat. Hold on if you own some, and if you don’t, you can buy here or (preferably) on dips of a couple of points. BUY.
ProShares Ultra S&P 500 Fund (SSO 120) remains in good shape, closing at new recovery highs today. As we wrote in the first section, we could see the market going either way in the near-term, but the evidence continues to point to nicely higher prices down the road for the overall market. We’re OK buying some here if you don’t own any; if you’re already in, just hang on. BUY.
Twilio (TWLO 136) continues to look just fine, as it’s hit new closing highs on most days of the past week. We will say, though, that buying volume has been below average during this latest upmove, and the stock (like many) is stretched above support (50-day line is down below 113), so some sort of shakeout or pullback wouldn’t shock us. But big picture, we see TWLO as an emerging blue chip and a leader of this market advance. We’re staying on Buy, though you should consider keeping new positions small up here. BUY.
Workday (WDAY 198) is being returned to a Buy rating as the stock has been steadily regaining ground from its sharp two-day, post-earnings correction at the start of March. That doesn’t mean the stock will head straight up here—it could easily consolidate a bit longer—but WDAY’s action last year during the market meltdown, and its strong push higher through February, tell us the name is likely a liquid leader of this advance. Long story short, the next move of a few points could go either way, but the story, sector and chart tell us the buyers remain in control and the next major move is likely on the upside. BUY.
Watch List
Coupa Software (COUP 99): Following a big advance into mid February, COUP has now consolidated for nearly five weeks just shy of the century mark. We don’t want the portfolio to get too software-heavy, but Coupa is a great story and now has a tempting setup.
Cronos Group (CRON 21): CRON has been quieting down since early February as the 50-day line (now at 19.4) catches up. We’re considering a half-sized position if the stock starts to show some strength.
DocuSign (DOCU 57): DOCU suffered some big-volume selling after earnings, but that hasn’t been unusual to see in recent weeks. The story remains in great shape, and if the stock can hold firm for a bit, it could offer up an entry point.
Etsy (ETSY 69): We can’t say ETSY is in the early stages of its overall advance (which began about a year ago), but the volume clue after earnings was very impressive, and the stock has calmed down nicely since.
LendingTree (TREE 341): We continue to like the prospects for TREE, though we’d prefer to buy on dips given its volatility and thin trading at times.
Xilinx (XLNX 130): XLNX dipped to its 25-day line and has pushed back to new highs, further confirmation that it’s a leader. If we get knocked out of CIEN, we could replace it with XLNX, though we’re not going to force that.
That’s it for now. You’ll receive your next issue of Cabot Growth Investor next Thursday, March 28. As always, we’ll send a Special Bulletin should we have any changes before then.
