First and foremost—all of us here at Cabot hope you have an enjoyable Thanksgiving weekend. Our offices will be mostly a ghost town by 2 pm EST today and will be closed Friday. We’ll be back with you next Monday. Enjoy!
WHAT TO DO NOW: Remain bullish. The market and leading stocks continue to act well, and while a pullback, shakeout or some other potholes could occur in the short-term, the odds continue to favor higher prices over time. In the Model Portfolio, we’re going to fill out both Dexcom (DXCM) and Qorvo (QRVO) by purchasing another half-sized position in each. That will leave us with around 14% in cash.
Current Market Environment
As of noon on Wednesday, the market is having a decent pre-holiday session, with the Dow up 8 points but the Nasdaq up a strong 41 points.
The overall market continues to impress, with last week’s brief, calm rest period resulting in another wave of buying ahead of the holiday. Encouragingly, the rally seems to be broadening out a bit—this week saw the small- and mid-cap indexes finally push out to multi-month highs, which is always a plus (it’s good to have the indexes in gear with each other).
Not surprisingly, our trend-following indicators both remain bullish, and we continue to like the action of leading growth stocks, more of which have been emerging by the week. All in all, then, we remain bullish.
Of course, the shorter-term yellow flags we’ve mentioned during the past couple of weeks remain in place. The market has now been running higher for nearly eight weeks without much of a rest, so some sort of shakeout (or rotation) is a growing possibility. In fact, we have seen a bit of a rolling pullback in a couple of areas (some chip stocks, for instance, as well as pockets of cyclical stocks).
That said, (a) there’s no telling when that will happen, and (b) given the persistent uptrends and strong breakouts in many stocks and sectors, the odds favor the first meaningful retreat likely being buyable.
Thus, we don’t think now is the time to throw caution to the wind, and choosing your stocks and spots on the buy side remains important. But we’re mostly focused on the fact that it’s a bull market and most stocks remain under strong accumulation.
In the Model Portfolio, we’re going to put a little more cash to work tonight, filling out our remaining half positions in Dexcom (DXCM) and Qorvo (QRVO), adding 5% of the portfolio to each. We’ll still have 14% on the sideline after the buys, which we’re fine holding as we see how the market acts following the holiday.
Model Portfolio
Dexcom (DXCM 228) is acting just like a liquid leader should, with a powerful gap and strong upside follow-through afterwards. Like many names, DXCM could easily pull back some from here (possibly a sharp day or two of selling?), but we think there’s plenty of upside left down the road. If you want to try to pinpoint a buy on dips, that’s fine, but we’re going to fill out our position around here (adding another half-sized position), and will use a mental stop in the mid/high 180s to start. BUY ANOTHER HALF.
DocuSign (DOCU 72) had been rejected by resistance in the 68 to 70 area for a few weeks, but it’s beginning to join the party—shares popped to new highs on solid volume last week. The relative performance (RP) line is a bit shy of its old (October) peak, which occasionally can mean the stock might need some more time to set up. Plus, it’s a fact that earnings are due out next week (Thursday, December 5), which will be big. Overall, the evidence is positive, so we’ll stay on Buy, but if you don’t own any, keep new positions small this close to the quarterly report. BUY.
Inphi (IPHI 71) pulled back seven straight days to its 25-day line before finally bouncing on Monday of this week. All in all, the action is something to watch, but IPHI hasn’t done anything wrong (basically where it was after its earnings gap in late October; pullback was on light volume) and many chip stocks have been pulling back and consolidating of late, so there’s nothing abnormal here. Hang on if you own it, and if not, we’re fine taking a position here. BUY.
MasTec (MTZ 68) has stabilized followed its big (and weird) selloff following the financing deal with two of its major shareholders. We’re not ones to argue with the stock, which is why we downgraded it to a Hold last week, but MTZ didn’t break its prior low, and so far, support appeared after just a couple of days of selling, which is consistent with a shakeout situation. A break of 62 or so would be a red flag, but right now we’re willing to give the stock some rope, to allow the stock’s major trend (up) and underlying business (very strong) to bring in buyers. HOLD.
The market’s persistent uptrend remains in place, which has helped pull our ProShares Ultra S&P 500 Fund (SSO 144) position higher. Now that we’re eight weeks into the advance, there’s a growing chance of a short-term shakeout/pullback/choppiness, so diving into a leveraged long index fund with both feet probably isn’t the best move right here. But it’s a bull market, and any pullback that comes is likely to be buyable. Bottom line, we’re fine grabbing some shares here or (preferably) on weakness. BUY.
Qorvo (QRVO 106) has been very impressive in our book, with next to no pullback after its gigantic earnings gap (and next-day follow-through). And today, in fact, it stretched to new highs (albeit on quiet, pre-holiday volume). We’re not going to say QRVO is at a pristine entry point, but we have a small profit and the lack of giveback is very bullish. We’re going to fill out our position here (adding another 5%) and use a mental stop for the entire position in the 90 area. BUY ANOTHER HALF.
Teladoc (TDOC 85) was a bit sloppy early last week (again, despite the straight-up move in the indexes, some individual leaders have paused of late), but it ended up closing the week well following an upgrade (the analyst sees telehealth near a tipping point, with TDOC likely to crank out 25% annual organic growth during the next three years), and this week it continued higher after a positive mention by ace investor Mario Gabelli. We’ll stay on Buy, though dips of a point or two are always possible. BUY.
Vertex Pharmaceuticals (VRTX 220) looks great, with a powerful, persistent run in recent weeks. There are no sure things, but given the long rest, the buoyant earnings estimates and the strong advance, the odds are that the stock’s first pullback or rest period of a couple of weeks will offer a nice entry point. We’re OK starting small here, though if we do see VRTX chill out a bit, we could average up. BUY.
Watch List
Axon Enterprises (AAXN 75): AAXN has nosed out to new highs yesterday, though a downgrade today brought some selling. It’s still OK, though we’re looking for a better setup (some tightness, or follow-on strength with a pullback after).
Peloton (PTON 31): We think PTON has big potential with its one-of-a-kind offering. The stock is hyper-volatile, but is holding its breakout from its IPO base. A bit more rest could have us starting a half position in the name.
Sea (SE 38): SE has held its earnings gap following a good-sized dilutive offering, which is encouraging. That said, it’s still futzing around its old highs, so we wouldn’t mind seeing a little more upside follow-through.
Tesla (TSLA 330): TSLA gapped down following the unveiling of its new crossover truck, and might need some time to consolidate. But the uptrend is far from broken and we think a decent setup could emerge going forward.
That’s it for now. You’ll receive your next issue of Cabot Growth Investor next Thursday, December 5. As always, we’ll send a Special Bulletin should we have any changes before then.
