WHAT TO DO NOW: Remain defensive. We believe the action of the past couple of weeks is positive—the indexes and most sectors have stabilized despite a continued barrage of bad news, economic reports and sour earnings, which is a good sign. Even so, our trend-following indicators are still clearly negative and, while there are a few growth names perking up, most are still buried south of moving averages. A bit more stabilization along with some upside could have us doing a little nibbling given our monstrous cash hoard, but tonight we’ll sit on our hands a bit longer and see how things play out. Our cash position remains in the 85% range.
Current Market Environment
The market is having one of its better days in a few weeks—as of 2 pm ET, the Dow is up 578 points and the Nasdaq is up 329 points
So, big picture, nothing has really changed—our Cabot Tides, Growth Tides and Cabot Trend Lines are all firmly negative, and coming into today, 75%-ish of all NYSE and Nasdaq stocks were below their 50-day and 200-day lines. Clearly, the trends remain down, so it’s best to remain defensive and let others fight it out every day.
That said, we have seen some positives of late, and today’s romp higher added to that. Since the low two weeks ago, the major indexes have basically stopped going down, despite a few well-known investors predicting doom (one sees inflation leading to a depression), a negative pre-announcement from Snap (which nailed most social media stocks), today’s sour earnings reports from Nvidia and Snowflake and continued hawkish talk from various Fed officials.
Indeed, while 2,746 stocks hit new lows two weeks ago (May 12), the quick retest of that area last Friday saw “just” 841, and those figures have dried up from there. We’ve also seen the much-maligned growth funds and indexes we track hold up well while a handful of potential leaders have actually perked up.
Now, obviously, after a 30% downmove over six-plus months in the Nasdaq, two weeks of simply not going down isn’t enough to get bullish. But we do consider it a good first baby step for the market—crawling before it can walk sort of thing. (Even after today, the Nasdaq is just to levels last seen on May 9.) If the indexes do push higher from here, it’s possible an intermediate-term green light could come in the middle of next week, but that’s assuming the buyers really keep at it. Thus, as has been the case all year, we’ll see how it goes.
When it comes to the Model Portfolio, we do see some room for potentially two small (half-sized) additions given our huge cash position; such moves (if they happen) would bring us to 75% cash, which in our mind is still a very defensive stance (three times as much in cash as in stock). If the market can get at least a little wind in its sails and some names on our watch list act well (and, importantly, we stop seeing so many disasters every couple of days—TGT, SNAP, etc.), we’ll look to get our feet wet.
But tonight, we think a bit more watchful waiting is in order to see if the recent action can follow-through—we’ve seen numerous times where a good day or two or even three quickly meets with intense selling pressure. Sitting mostly in cash isn’t the end goal, of course, but it beats throwing money into the furnace, especially when we’re still seeing so many blowups. We have no changes tonight, but we’ll be on the horn in the days ahead if we do.
Model Portfolio
We’re nearly two-thirds of the way through the second quarter, and to this point oil prices have averaged around $104 per barrel, about 10% above the $95-ish they averaged in Q1—plus, natural gas prices have taken off, averaging north of $7 per unit in Q2 compared to $4.60-ish last quarter. Obviously, a lot can change in a hurry in the energy markets, but it looks like investors are slowly pricing in bigger possible dividend/free cash flow/share buyback totals for Devon Energy (DVN) and its peers; the fact that the firm is going ex-dividend relatively soon ($1.27 per share; ex-dividend June 10) is probably keeping some traders around, too. As we wrote last week, we’re basically in trend-following mode at this point, letting our remaining positions run, so with DVN acting well (new highs today), we’re happy to hang on. That said, we wouldn’t be complacent here as a lot of good news has likely been priced in and the stock is testing an upper channel line on the weekly chart (basically saying it’s getting extended on an intermediate-term basis). Thus, we’ll stay on Hold here, enjoying the ride and giving the stock some room to maneuver. HOLD
ProShares Ultra S&P 500 Fund (SSO) has performed as we wrote about in the first section, with some resilience last week and some upside this week despite some bad headline news. It’s a good first step, but as of now SSO (and all major indexes) are still below even their 25-day lines, so while up is good, nothing definitive has been seen. If you’re craving cash in your portfolio and have a good-sized position here, you could even lighten up on SSO on this bounce—but given our stance, we’ll just sit tight. HOLD
Watch List
Albemarle (ALB) and Livent (LTHM): Business at both ALB and LTHM is terrific; Albemarle just raised annual guidance, saying its contract renegotiations will lead to a 140% hike in selling prices this year! The question is what growth looks like in 2023 (which Wall Street will soon focus on), but there’s little question the long-term demand picture for lithium is strong. The stocks are choppy but are rounding out their launching pads.
Blackstone (BX): Given BX’s excellent portfolio and reasonable correction, we think the odds are strong that it will participate in the next bull phase. Like most things, the stock needs some work, but we’re keeping an eye on it.
Celsius (CELH): CELH has held its post-earnings rally and is close to multi-month resistance in the mid-60s. Shares are crazy volatile, but growth here is outstanding and a strong move and an improved market environment could have us nibbling.
Halliburton (HAL): HAL is now six weeks into a normal-looking rest phase that we think will eventually resolve to the upside—but that doesn’t mean there can’t be another sharp selloff or two before it’s ready to run.
Halozyme (HALO): HALO looks great—it’s the top name on our watch list due to its recent relative strength, its big correction for most of last year and its rapid, reliable growth story (and the reasonable valuation doesn’t hurt the cause either). After being yanked down with the market in early May, the stock’s quick snapback to multi-month highs is a good sign.
Shockwave Medical (SWAV): SWAV definitely needs work, but the massive wash-and-rinse action before and after earnings—along with the out-of-this-world numbers—tells us the downturn could be over. The firm and its partner just received approval for its intravascular lithotripsy offerings in China, which can’t hurt.
Starbulk Carriers (SBLK): Drybulk carriers are as cyclical as they come, but it’s hard not to be impressed with the firm’s jaw-dropping results, which come from a combination of tame CapEx and buoyant shipping rates; the Q1 dividend (to be paid mid-June) will be $1.65 per share. More important to us, fleet growth should be tame through 2024, which should keep cash flow huge for many quarters.
That’s it for now. You’ll receive your next issue of Cabot Growth Investor next Thursday, June 2. As always, we’ll send a Special Bulletin should we have any changes before then.
| Stock | No. of Shares | Portfolio Weightings | Price Bought | Date Bought | Price on 5/26/22 | Profit | Rating |
| Devon Energy (DVN) | 2,413 | 8% | 28 | 6/4/21 | 74 | 163% | Hold |
| ProShares Ultra S&P 500 (SSO) | 3,410 | 9% | 47 | 5/29/20 | 52 | 10% | Hold |
| CASH | $1,671,017 | 84% |