WHAT TO DO NOW: Remain bullish. The bull market rolls on, and while there are legitimate shorter-term yellow flags (a good reason to be choosy on the buy side), the big-picture outlook is solid. We have no changes in the Model Portfolio today.
Current Market Environment
Hopefully right now many of you are well on your way to mastering the art of R&R, but we wanted to send out a quick update to stay in touch—we should be on-line here and there in the coming days, so don’t hesitate to email (mike@cabotwealth.com) with any questions that come up. In the meantime, Happy New Year!
So far today, the major indexes up a bit in low volume post-holiday trading. As of 10:30 am or so, the Dow is 43 points and the Nasdaq is up 34 points.
Nothing much has changed with our overall market view. Bigger picture, the evidence remains very encouraging, with our Cabot Trend Lines and Cabot Tides both in great shape—in fact, the market could pull in 3% or more and still be within an intermediate-term uptrend. Plus, there are numerous longer-term studies telling us 2020 is likely to be a bull year. All in all, then, you should remain mostly bullish.
Near-term, we think the situation is a bit of a toss-up. Numerous sentiment measures are now showing extreme complacency, we’re 13 weeks into the current rally and many of the worries of the past few months have dissipated—all things that could easily lead to some potholes, rotation or otherwise tricky trading.
That said, we’re not getting cautious because of these yellow flags. For instance, sometimes measures like low put-call ratios lead to sharp pullbacks, but sometimes they lead to “only” some choppy sideways trading. And other times they don’t have much of an impact at all.
Bottom line, near-term risk is higher, so we’re still stepping a bit carefully on the buy side; we’re holding around 17% in cash. But we’re also holding our strong performers and thinking, pullback or not, many will see higher prices down the road. We have no changes today.
Model Portfolio
Dexcom (DXCM 215) has steadied itself in the 210 to 220 range, which is solid action after the recent rebound. The company has identified the reason behind its app outage from a couple of weeks ago and is taking steps to make sure it doesn’t happen again. Plus, the firm’s G6 CGM is being integrated into Tandem Diabetes’ t:slim X2 pump in the UK, Sweden, Italy and Spain, which doesn’t hurt. Back to the stock, further near-term wobbles are possible, but we think DXCM’s path of least resistance is up. BUY.
DocuSign (DOCU 74) has tightened up in the 73-75 area during the past couple of weeks, which is a good sign. We’re still keeping our eyes open, as DOCU hasn’t been a powerful leader since the market’s early-October low, but we’re putting more emphasis on the fact that (a) the stock is within spitting distance of all-time highs, and (b) the stock’s September blastoff and firm’s pristine growth story. BUY.
Inphi (IPHI 74) is consolidating just south of all-time highs on light volume, which is part of a six-week rest period. The company has begun sampling its latest product for data center interconnects, which is sure to be gobbled up by big cloud operators down the road. Dips of a couple of points are always possible, but we’re OK picking up shares around here; a decisive push north of the 76-77 range would be bullish. BUY.
ProShares Ultra S&P 500 Fund (SSO 151) continues to levitate with the market. It’s been up every day 11 trading days in a row (including this morning)! If you’re aggressive, you could consider taking a little profit off the table given the short-term signs of complacency out there, but we’re going to keep it simple and just sit tight given our longer-term bullish outlook. We’ll stay on Buy, but try to get in on pullbacks of a few points. BUY.
Qorvo (QRVO 118) remains in great shape, refusing to give back any of its sharp early-December gains. Like most stocks, it’s extended to the upside (the 50-day line is down around 100, though it’s rising quickly), so any market retreat could possibly take a bite out of the stock. But we think QRVO’s huge November blastoff and the 5G smartphone boom will propel the stock even higher down the road. BUY.
Sea Ltd. (SE 39) is hovering right around resistance near 39. If it accelerates higher from here, we’ll probably buy more, but right here we’re sticking with a half position. We think the firm has the makings of an emerging blue chip e-commerce play in Asia. BUY A HALF.
Teladoc (TDOC 83) is four weeks into a correction and consolidation, but we like the stock’s recent bounce off its 50-day line. A break below 73-74 would be a red flag, but at this point we think TDOC wants to push to new highs. BUY.
Vertex Pharmaceuticals (VRTX 220) rallied from 170 in early October to nearly 225 in late November (55 points or so), and since then, it’s only pulled back as low as 216 (9 points) as it digests those gains—a very strong sign. Like everything else, a short-term shakeout is possible, but we think VRTX is a good buy around here. BUY.
Watch List
Axon Enterprises (AAXN 73): AAXN looks good but we’d like to see a decisive push above 76 or 78 to tell us the trend is clearly up.
Carvana (CVNA 97): CVNA is choppy and challenging, but there’s no question it’s in an uptrend. Let’s see how it trades around the century mark.
Splunk (SPLK 153): We are starting to see some (not all) of the leading software names shape up, and SPLK is one that’s just coming off a long base with some excellent volume clues.
Tesla (TSLA 431): TSLA has gone bananas recently, but we’re viewing this as the first real “thrust” after many years in the doldrums. The next pullback (its first after breaking out) should provide a solid opportunity.
That’s it for now. You’ll receive your next issue of Cabot Growth Investor next Thursday, January 2. As always, we’ll send a Special Bulletin should we have any changes before then.
