First and foremost, it’s been an ugly week, but we still have a lot to be thankful for—so from all of us at Cabot to you, we hope you and yours have a happy, healthy and safe Thanksgiving. Our offices will be closed Thursday and Friday, but we’ll be back at it next Monday.
What To Do Now: This week has been reasonable for the major indexes, but has flashed a sudden, more bearish change in character for growth stocks. We’re not selling wholesale, and many names have pulled back normally thus far. But we’re also not going to simply hold onto stocks that have cracked. In the Model Portfolio, we sold all of Dyntrace (DT), half of Asana (ASAN) and one-third of Cloudflare (NET) on Monday’s special bulletin. And today, we’re going to dump the rest of Asana (ASAN), which could bounce but whose uptrend looks over. That will leave us with a cash position in the upper 40% range.
Current Market Environment
For growth stocks and indexes, there’s clearly been a lot of damage this week. Funds like ARK Innovation (ARKK) have hit new six-month lows, while broader indexes like the Next Generation Nasdaq (QQQJ) and Russell 2000 Growth (IWM) have slid all the way to their 50-day lines and given up big chunks of their October rallies.
This comes on the heels of an increasingly narrow environment, with the number of stocks hitting new highs less than half of what it was just a month ago, despite the Nasdaq hitting a fresh high as recently as Monday morning.
Moreover, among individual stocks, what started out as isolated weakness has become a big sinkhole, with many extended stocks decisively breaking down.
Now, it’s not 2008 out there—even the weaker major indexes (small- and mid-cap stocks) are still holding near their 25-day lines, so our Cabot Tides remain positive. While that’s cold comfort, the fact is we’ve seen a ton of these rotations this year, and all have eventually led to a renewed rally (or re-rotation back into growth), so we’re not going to ignore the overall picture.
Plus, among growth stocks, while everything is down sharply, some look OK in the scheme of things—basically, a lot of stocks that raced higher and hit new highs last week have pulled back sharply but normally so far. However, there are also many that stalled out for the prior few weeks and have now cracked intermediate-term support. And, frankly, some of the action we’re seeing does seem big-picture abnormal, but we’re not willing to make any grand calls after a couple of (very) bad days.
It’s not fun, but we always want to go with the evidence rather than fight it; yes, maybe these names bounce, but it’s also possible that what started as a normal shake-the-tree event is morphing into something more serious, at least for growth stocks.
Long story short, we came into this week with around 21% in cash, and basically doubled that on Monday’s special bulletin, selling all of Dynatrace (DT), half of Asana (ASAN) and one-third of Cloudflare (NET). While we’re not advising selling wholesale, we’re also not going to ignore what’s going on with our stocks.
In the Model Portfolio, we’re going to sell the rest of Asana (ASAN) today, as the stock looks to have put in a top, while also placing a couple other names on Hold. That will bring our cash position up to the mid/upper 40% range (it’s changing quick these days with the movements of stocks).
Going ahead, we’re open to anything—certainly not complacent, but also realizing that many stocks have dropped to support, so if the buyers show up, it could be yet another stick save for growth titles. Stay tuned.
Model Portfolio
Ambarella (AMBA) has been hit hard, but compared to most growth stocks, it’s in OK shape, still trading north of its 50-day line (its first test of the 50-day since getting going in September, which is often a good entry point) and the recent selling volume, while above average, isn’t anything close to what was seen when the stock blasted off. Of course, earnings are due next week (November 30), which will tell the tale. If we were craving cash or had a big position, we might trim some shares here, but with a profit and “only” a half-sized stake, we’ll hold onto what we have—and, if you’re aggressive and don’t own any, we’re not opposed to rolling the dice on a few shares (just a few, not a big position) ahead of earnings. BUY A HALF
Asana (ASAN) has had a huge run since the spring, and after some stalling out under the 140 area (which we wrote about in last week’s issue), some sort of correction wasn’t out of the question. But the action of the past two days is the textbook definition of abnormal—shares have plummeted to the century mark on no news and on giant volume, slicing through various support areas with ease and giving back all of its rally since early October. A bounce from here is possible, even likely, especially with earnings out next week. But there’s little doubt a meaningful top is in, and after such a big move, we can’t rule out further declines. We sold half our position on Monday, and we’re going to dump the rest today. SELL
Cloudflare (NET) looks like every other cloud, networking or software stock, having fallen a bunch over the past three sessions. And given our big position and the large prior advance, we did book partial profits on Monday’s special bulletin, selling one-third of our shares. That said, we’re not panicking out of the rest of our shares—the stock is still well above its 50-day line (now near 168) and the move has “only” taken back the gains it had this month (i.e., most of the huge October gains are still intact.) We’ll be watching closely to see if and how well any bounce is after this selloff, but right here, we’re comfortable holding on and giving our remaining, profitable position some rope. HOLD
Devon Energy (DVN) remains in great shape—it and its peers did slide into the end of last week, but the bounce since then has been solid, with DVN back to within a few dimes of all-time highs. (Interestingly, most leading oil titles tested their 50-day lines before bouncing, but DVN never did—a sign of leadership.) Helping the cause is energy prices, which may be having a sell-the-rumor, buy-the-news reaction to the release of oil reserves from the strategic reserve: Oil had dipped from about $84 in late October to $75 on Monday, but have moved back to $79 or so, while natural gas is back to around $5. More important is that big investors are increasingly believing that, even if prices slip another 15% to 20% and stay there, Devon will pay out big dividends, buy back a lot of shares and still pay off a few hundred million more of debt in the quarters to come. Now, with that said, if the market and DVN really keel over, we could always take partial profits. But right now, the sector in general and Devon in particular are acting great. We’ll stay on Buy. BUY
Dexcom (DXCM) is one of those situations where, just looking at the last few days, it acts awful, but when looking at the chart, shares really haven’t done anything wrong (yet)—the stock pulled back to its 50-day line at yesterday’s lows, which is acceptable, and being the second test of that support area since the June breakout, it “should” find support here. Of course, if it doesn’t, that would tell us something, but right here we advise gritting your teeth with your half position; if you don’t own any, taking a swing at it here near support is fine. BUY A HALF
Dynatrace (DT) probably hasn’t topped permanently given its outstanding story and growth numbers. But there’s no question that, after a prolonged run, the sellers are in control, with DT skidding 11 of the past 13 sessions and nearly tagging its 200-day line yesterday. A bounce is certainly possible, but barring something truly dramatic, odds favor shares will need a lot of time to repair the damage. We’ll keep a distant eye on it should it shape up down the road, but we sold on Monday’s special bulletin and think there will be better things to own when growth stocks reassert themselves. SOLD
Floor & Décor (FND) doesn’t look great, and we continue to keep our eyes open should the sellers really show up. But if anything, it’s shaped up a bit in the past couple of weeks, and even found some solid support yesterday near its 50-day moving average. Our leash isn’t limitless, but we’re optimistic the Berkshire Hathaway news could help perception. Overall, we’re just following our plan and are OK holding north of the 120 area (give or take). HOLD
ProShares Ultra S&P 500 Fund (SSO) has had a couple of wobbles so far, but has basically been a port in the growth stock storm—shares have effectively moved straight sideways over the past two weeks and are still perched north of their 25-day line. We’re certainly not ruling out more of a retrenchment going forward, as the growth stock selling could spread. But with the Tides bullish and other factors still looking positive for the major indexes, we’re sticking with our Buy rating. BUY
ZoomInfo (ZI) has gotten whacked upside the head on no news, caught up in the selloff in all things cloud, networking, software and growth in general. Obviously, the timing on the entry couldn’t have been worse, but we’re not throwing in the towel yet; shares should have plenty of support in this area (remember ZI has spent months base-building) and it’s not far from its 50-day line (in the 68-69 area). Don’t get us wrong: The action is a red flag, so we’ll switch to a Hold rating, but with “only” a half-sized stake, we’ll give ZI a little wiggle room and see if the pullback attracts some buyers. Hold for now. HOLD
Watch List
Arista Networks (ANET): ANET has been super resilient this week, which follows a couple of tight weeks after a monstrous earnings gap. Earnings growth is likely to accelerate going forward.
Coinbase (COIN): Yes, COIN has pulled back sharply, but it looks normal to us coming after a strong six-week advance. We actually think it’s near a lower-risk entry point here, but want to see the environment improve for growth stocks.
Roblox (RBLX): We took a chance on RBLX earlier this year to no avail, but the stock looks to have decisively broken out as fears over user growth and monetization have been tossed aside.
That’s it for now. You’ll receive your next issue of Cabot Growth Investor next Thursday, December 2. 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 11/23/21 | Profit | Rating |
| Ambarella (AMBA) | 655 | 166 | 10/14/21 | 180 | 8% | Buy a Half |
| Asana (ASAN) | 937 | 89 | 7/22/21 | 101 | 14% | Sell |
| Cloudflare (NET) | 1,193 | 113 | 6/25/21 | 185 | 63% | Hold |
| Devon Energy (DVN) | 7,240 | 28 | 5/7/21 | 43 | 54% | Buy |
| Dexcom (DXCM) | 186 | 635 | 11/12/21 | 590 | -7% | Buy a Half |
| Dynatrace (DT) | - | - | - | - | - | Sold |
| Floor & Décor (FND) | 1,845 | 111 | 4/9/21 | 131 | 18% | Hold |
| ProShares Ultra S&P 500 (SSO) | 871 | 60 | 5/29/20 | 142 | 137% | Buy |
| ZoomInfo (ZI) | 1,535 | 78 | 11/18/21 | 68 | -13% | Hold |
| CASH | 923,716 |