WHAT TO DO NOW: Remain defensive. Most of the intermediate-term and secondary green lights have fallen by the wayside in the past two weeks, including our Cabot Tides, which are again flashing a red light. Thankfully we went slow on the buy side during the rally, and earlier this week, we dumped our stake in ProShares Ultra S&P 500 Fund (SSO) given the market’s reversal. Tonight, we’re placing Celsius (CELH) on Hold, though we’re sitting tight with our four remaining positions—and a cash position of 65%.
Current Market Environment
Some bad news surrounding many chip firms had the market down decently today, though the buyers did support stocks as the day wore on. At the close, the Dow was up 146 points, though the Nasdaq still finished lower by 31 points.
Beyond just today, though, it’s clear the sellers have stepped up in a big way—the retreat that started two weeks ago was normal at first, but the Federal Reserve’s hawkish words last week (and some follow-up comments by Fed heads suggesting they were happy to see the market down) has caused a buyers’ strike, with the indexes bleeding out in recent days.
Indeed, much of the encouraging top-down factors have dissipated—our Cabot Tides have technically flipped back to a sell signal (a strong bounce could change that, but at the least, the intermediate-term trend is no longer up), our Two-Second Indicator is again negative (four straight days of triple-digit readings here) and our Aggression Index’s positive stance has also vanished.
And, while we would say individual potential leading growth stocks have held up better than the major indexes, most have been under pressure; a few names we’re watching have cracked and today the bears knocked pretty much everything around.
How to handle all of this depends in large part on what you’ve been doing lately (and, really, this year as a whole). If you’re heavily or mostly invested, we would definitely be respecting the evidence and paring back; no need to hold any big losers or have too much exposure until we see some stabilization in the market at the very least.
For our part, we dumped our position in ProShares Ultra S&P 500 Fund (SSO) earlier this week, leaving us with 65% cash and four stocks. The question of what to do from here is tricky, as (a) all of our stocks have come under pressure with the market, but (b) nothing has cracked any meaningful support and (c) we don’t have any huge losses.
We’re definitely not whistling past the graveyard but given our stance and position on the stocks we own, we’re sitting tight—but we are going to place some names on Hold and throw up some mental stops in case the market unravels much further.
Model Portfolio
Celsius (CELH) surged to new highs a couple of weeks ago on great volume, though we didn’t average up given the stock’s crazy volatility and, of course, that the market was still iffy. Sure enough, the stock has come straight back down in recent days, falling below its 25-day line (though still above its 50-day, which is nearing 90). This last stretch has been ugly for sure, but the stock fell to where it was a couple of weeks ago (near its post-Pepsi-deal lows in the low 90s) and CELH really hasn’t done anything wrong at this point—plus, of course, absolutely nothing has changed with the fundamental story (if anything, we’d guess a slowing economy could ease some supply chain pressures and have little effect on demand for its energy drinks). We are going to switch our rating to Hold and use a mental stop in the mid/upper 80s at this point, but, assuming you have “only” a half-sized stake and bought with us, we advise holding on for now. HOLD
Devon Energy (DVN) ran from a recent low near 53 to a high of 75 before shaking out to 67 or so earlier today—not fun, but overall, nothing abnormal. Obviously, if the market continues to implode, all bets are off, and it’s clear that the Fed’s hawkishness is raising recession fears, as oil prices have quickly retreated into the upper $80 range, though gas prices remain north of $9 as that market remains tight as a drum. But to this point, we’re still overall optimistic, as the cash flow outlook is outstanding even if prices slip further and, as we wrote last week, Devon’s M&A moves seem to have boosted perception. A drop back into the 58 area would make the past few months look like a huge top, but at this point, we advise holding what you have—and if you’re not yet in, we think you can start a position in this area. BUY
Enphase Energy (ENPH) has been tedious in recent weeks, basically hovering between 270 and 300 and rejected at round-number resistance many times—but like our other names, it hasn’t done anything wrong, as its 50-day line is down near 250 and with the stock having held onto the vast majority of its post-breakout gallop higher. Moreover, many other solar names (from mega-cap plays to down-the-food-chain stories) are also holding well; there’s no surety, but the group certainly looks like a fresh leader, especially given all the industry incentives in the green energy bill that recently passed. To be fair, we do have a modest loss, so we’re not complacent, but we’re sticking with our ENPH position—and if you don’t own any, we’re fine adding a small position here, assuming you have plenty of cash already on the sideline. BUY
We avoid predictions, but we still think the evidence supports the view that the worst of the bear market could be over for many indexes and the best stocks—but a bull clearly hasn’t begun yet, either, as the latest selling wave has shown. Given the reversal of most of our recent green lights—plus the fact that the long-term Cabot Trend Lines remain clearly bearish—we decided to pull the plug on all of our ProShares Ultra S&P 500 Fund (SSO) on a Special Bulletin on Tuesday. Yes, that was a quick reversal from our stance a couple of weeks before, but obviously, the evidence has changed in a hurry, so we did, too. Getting back to what we wrote above, though, we would be interested in either revisiting SSO or possibly a broader index fund (small-caps usually outperform early in a new bull phase; the ProShares leveraged long fund for the Russell 2000 is IWM) if this ends up being part of a bottom-building process—but we’ll be saving any buys like that until there’s a far clearer bullish picture. In the meantime, we sold SSO and are holding the cash for now. SOLD
Shockwave Medical (SWAV) has pulled in somewhat, but it remains our strongest stock, and really, one of the strongest growth titles in the market; it hasn’t even touched its 25-day line (now above 270 and rising quickly). At this point, we half-expect some more retrenchment as sellers look for stocks that have “meat left on the bone,” but given our cost basis (245 on the combined position), we’re happy to give SWAV some room to maneuver. If you want to throw a few shares overboard to book partial profits, that’s fine, but we’re sticking with our stake here—and, frankly, if you don’t own any, we think dips of another 10 to 15 points could prove buyable. BUY
Watch List
Albemarle (ALB): ALB has pulled in sharply in recent days, so it’s not ready to just up and go at this point. But the overall chart isn’t bad and if it can find support soon, we think it can round out a tighter launching pad.
Neurocrine Biosciences (NBIX): NBIX has been out of favor for a long time, but it started outperforming the market in January, broke out in early August and has held firm since then. After some mixed results, both sales and earnings were up nicely in Q2 and analysts see that trend continuing through at least next year.
Uber (UBER): Fundamentally we like Uber because both its Rides and Delivery businesses should grow nicely in the long term, and after a couple of years of huge losses, the top brass has their eyes on the prize, with positive EBITDA in Q2 and forecasts for big growth ahead. It’s more of a turnaround situation than a young growth stock at this point, but we think the big Q2 earnings reaction and resilience since is intriguing.
Wolfspeed (WOLF): WOLF actually looks totally fine—if the market were in decent shape, we might take a stab at it here, but given the environment, we’ll keep it on our watch list. Nothing that’s happening in the world should stop the adoption of silicon carbide chips from accelerating, and near term, for more big deals to be inked by Wolfspeed.
That’s it for now. You’ll receive your next issue of Cabot Growth Investor next Thursday, September 8. 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 9/1/22 | Profit | Rating |
| Celsius (CELH) | 1,009 | 99 | 8/19/22 | 100 | 1% | Hold |
| Devon Energy (DVN) | 2,413 | 28 | 6/4/21 | 68 | 141% | Buy |
| Enphase Energy (ENPH) | 680 | 291 | 8/3/22 | 295 | 1% | Buy |
| ProShares Ultra S&P 500 (SSO) | - | - | - | - | - | Sold |
| Shockwave Medical (SWAV) | 807 | 245 | 7/22/20 | 295 | 20% | Buy |
| CASH | $1,289,545 |