WHAT TO DO NOW:Nothing much has changed with the top-down evidence, as our primary indicators remain negative, but the resilience in growth indexes that started in May remains in place, and we’re actually seeing a handful of names test or lift above some resistance. All in all, we advise remaining defensive, but we are going to nibble on one name tonight given the recent, more positive (less negative) vibes—we’ll add a half-sized stake in Halozyme (HALO) tonight, leaving us with around 84% in cash. If things progress further, we could do a little more buying, but of course we’ll wait for our indicators to turn green before putting larger amounts of cash to work.
Current Market Environment
The indexes had a good day, with growth stocks and the broad market doing even better. When the closing bell rang, the Dow was up 347 points while the Nasdaq was up 259 points.
Nothing much has changed with the overall market: The major indexes have steadied themselves since mid-June, but not enough to change any rubber-meets-the-road evidence—our Cabot Trend Lines and Cabot (and Growth) Tides remain negative, as does our Two-Second Indicator (though we did see new lows come in around 50 today). Thus, we advise remaining patient and defensive.
That said, our antennae are up for a couple of reasons: The resilience in growth stocks, funds and indexes, which started in mid-May and continued during the June implosion has continued into this month. For the first time in months, the Nasdaq and some growth funds are actually outperforming other big-cap and broader indexes.
Even better, we’re starting to see a few growth stocks pop above resistance this week, which are really the first breakout attempts we’ve seen since March. Of course, so far this year, just about any attempt has been quickly rejected—and thus how these and hopefully other growth stocks act as they probe multi-month highs will be key. Right now, though, the action of growth indexes and stocks look like a small, positive change in character.
Of course, we all have lived through the past few months, so it’s certainly possible these small rays of light get erased quickly in some new round of selling; as we wrote above, it’s best to remain safe and let the market and growth stocks really prove themselves.
That said, given the small positive vibes and our giant cash hoard, we’re going to make one small move, adding a half-sized stake in Halozyme (HALO). If the market shows further strength, we could nibble on another name or two, and of course should some of our primary indicators turn positive (Tides, Two-Second, etc.), we’ll buy more. But tonight, we’ll throw one line in the water while onto a still sizable (~84%) cash position.
Model Portfolio
We’ll start with Halozyme (HALO), which we’ve been stalking for a while now and which has continued to act well—albeit with plenty of bumps in the road—during the past couple of months. But today it showed us something, leaping to new highs on big volume, so we’ll start a half-sized position. We won’t rehash the entire story, but suffice it to say that HALO has pretty much all of the characteristics of a winner; even the one fly in the ointment (this year’s earnings growth is projected at just 6%) is solely due to paying higher cash taxes. (Analysts see 2023’s bottom line up 37% as royalties continue to crank ahead.) Should the breakout fail, we’ll use a stop in the lower 40s (42 to 43 area), which given us buying a half-sized stake (5% of the portfolio), is a reasonable risk to take. BUY A HALF
Devon Energy (DVN) tested our mental stop in the 50 area yesterday (near its 200-day line) before finding support, and the whole group bounced a bit today as commodity prices rebounded. We’ll see if this bounce persists for more than just a day or two as many weak hands/hot money have almost surely been knocked out and the cash flow profiles here remain buoyant even should oil prices slip much further—not to mention the fact that the upcoming dividends should be outstanding due to elevated Q2 prices. (Devon’s quarterly report and dividend announcement will come August 1.) Ideally, yesterday was a near-term low that DVN and the group can work off of, but we’ll just play it by the book—if this bounce sputters and the stock cracks its 200-day line, we’ll probably trim DVN further (we might not sell it all given our huge cash hoard, we’ll see), but for now we’ll sit tight with our remaining shares and take things day to day. HOLD
Like a lot of things, ProShares Ultra S&P 500 Fund (SSO) has held its own in recent weeks, with no net change since the first half of May, but it’s also not in an uptrend yet, either—for the second time in two weeks, SSO is bumping up into its declining 25-day line. Nothing has changed with the picture here, so we’re not making any changes tonight—but, again, we’re not opposed to possibly making a move here and replacing it with a potential leader. Tonight, though, we’ll just hold tight. HOLD
Watch List
Bumble (BMBL): BMBL continues to act well—yesterday, it nosed above its 200-day line for the first time ever while hitting its highest level since January. Its super volatile, but the RP line has been rising now for four months the story looks solid as it looks like the next big thing in the online dating world.
Celsius (CELH): CELH is another name that’s leapt above resistance this week—this year, such action has usually attracted sellers right quick, so the next few days could be telling. The story is as good as ever, offering hypergrowth, a mass market and a product (energy drinks) that shouldn’t be affected by the economy.
CrowdStrike (CRWD): CRWD topped near 300 and fell as low as 130 in May, but despite the market languishing, the stock is 60 points off its lows. All signs point to demand remaining super strong for cybersecurity in general, and especially for CrowdStrike’s endpoint and next-gen offerings.
Enphase Energy (ENPH): ENPH has flopped around in recent days (at times getting caught up in the commodity selloff), but the action has been normal and today it made yet another run at resistance. Like so many stocks, volatility is crazy, but the story is great, and the stock remains in position to get moving if the market does.
Pure Storage (PSTG): PSTG could get dropped from the watch list, not because it’s done anything “bad” but simply because there are other peppier names we see. That said, we’re still keeping a distant eye on it given the great growth story and strong earnings reaction in June.
Shockwave Medical (SWAV): SWAV has been gyrating just south of the 200 area, but to us that’s a good thing, allowing shares to tighten up somewhat after a big rebound during the past couple of months. Like CRWD, this stock needs more work, but the story is pristine, and the stock is clearly showing a lot of relative strength.
That’s it for now. You’ll receive your next issue of Cabot Growth Investor next Thursday, July 14. As always, we’ll send a Special Bulletin should we have any changes before then.
| Stock | No. of Shares | Price Bought | Date Bought | Price on 7/7/22 | Profit | Rating |
| Devon Energy (DVN) | 2,413 | 28 | 6/4/21 | 54 | 91% | Hold |
| Halozyme (HALO) | New Buy | - | - | - | - | Buy a Half |
| ProShares Ultra S&P 500 (SSO) | 1,705 | 47 | 5/29/20 | 48 | 1% | Hold |
| CASH | $1,746,293 |