WHAT TO DO NOW:Remain cautious. There’s not much new to say about the market—it’s weak, the trend is clearly down and more resilient stocks are beginning to get hit. Panic is clearly setting in, so our antennae are up for any sort of turn higher, but as always, we have to see it first before acting on it. We sold our stake in Devon Energy (DVN) on a special bulletin earlier this week, leaving us with just two stocks and a cash hoard of 79%. Details below.
Current Market Environment
Stocks are having another terrible day today, with investor fears building that the Fed will push the economy into a deep recession. As of 2:10 pm, the Dow is off 656 points and the Nasdaq is plunging 409 points.
Despite the dramatic movements and big-font headlines we’re seeing every day, there’s really not much new to say about the market—it’s very weak, trending down and is taking more and more names along for the ride (Apple (AAPL) is finally succumbing, while resilient names on our watch list are coming in). Our trend-following indicators remain clearly bearish, with most indexes re-testing their May/June lows (or dipping a bit beneath them), and our Two-Second Indicator is also unhealthy; it hasn’t seen a sub-100 reading since September 13!
With the pressure on the market very intense, we remain very cautious—we were at nearly two-thirds in cash for weeks, and in recent days, have bumped that up to 79%, a highly defensive stance, and we’re content to remain mostly on the sideline until the buyers can put up at least some sort of fight.
With that said, our antennae do remain up given the overwhelming number of signs pointing to deep pessimism and washed-out measures of selling—everything from breadth (just 7.5% of NYSE stocks above their 50-day lines; three straight days of greater than 900 NYSE new lows) to sentiment (two straight weeks of 60% bears) to predictions (we’re now seeing people talk about no progress in the market for the next decade) to headlines (sabotaged pipeline from Russia; Britain currency issues, etc.) are all displaying plenty of panic. In our view, the short stocks, short bonds and long the U.S. dollar is likely a very crowded trade.
Of course, we’re trend followers, so none of the above will cause us to buy—but just as it would be folly to ignore numerous signs of speculation and enthusiasm after a huge run higher, we’re not going to ignore the fact that many are throwing in the towel here.
For now, though, there’s nothing much to do—we’re down to just two stocks, and while we won’t just hold and hope, both are acting acceptably so far. So tonight, we’ll sit tight with our huge cash hoard and wait patiently for a market turn.
Model Portfolio
We had a mental stop for Devon Energy (DVN) near its 200-day line, so when that cracked on Monday, we let our shares go. DVN has since bounced along with oil prices, but the chart certainly looks cracked. Long term, whether it’s DVN or another energy name, we do think the group can do well during the next bull phase—the “new playbook” should continue to attract a wider array of big investors, and the fact that oil and gas names were out of favor for years before 2021 also helps. If you still own some and want to use a stop a couple of points under here, that’s fine, but most of the group does look toppy on their weekly charts here—we sold and are holding the cash. SOLD
Enphase Energy (ENPH) took a big hit with the market today, but this comes after a bounce the prior couple of days—net-net, shares are still hovering in the vicinity of their August lows, which is much stronger than the market and most stocks. There’s little doubt demand for Enphase’s products will remain red hot in the U.S. (thanks to the recent green energy bill) and in Europe (where everyone is desperate to have some control over their energy supply, especially as winter approaches), but as always, the stock is not the company, so we’ll just take it as it comes. So far, ENPH is acting well enough, so we’ll hold our position. HOLD
Shockwave Medical (SWAV) offers a similar story as ENPH, with an acceptable correction last week and a decent bounce so far this week; the stock is north of its 50-day line, which only 8% to 15% of stocks are at this point. The valuation here isn’t cheap, but the rapid and reliable growth profile here is hard to beat. If you own some, sit tight. HOLD
Watch List
While not many stocks look ready to get going in just a few days, we’re not having trouble finding a bunch that are miles north of their May/June lows and, if things go right, could be ready to get moving in the next few weeks.
Academy Sports (ASO): ASO remains near its peak, helped along recently by a solid quarterly report from peer Dick’s Sporting Good (DKS). We like the huge launching pad, and think the cheap valuation, share buybacks and cookie-cutter story will eventually result in a big run.
Albemarle (ALB): ALB is still clinging to its 50-day line, with a pattern of higher highs and lows during the past few weeks, which is a rarity. ALB remains near the top of our watch list.
Celsius (CELH): “Wait, Mike, you just sold your stake in CELH—and now you want to buy it back?!” No, no, not yet. We’re simply keeping an eye on it with the thought that the recent weakness—which was severe, pulling the stock in 28%—could end up being part of a normal base-building effort that could eventually resolve itself to the upside. It needs work for sure, but we’re keeping an eye on it for now.
Gitlab (GTLB): GTLB has a great, emerging blue-chip-type of story in our view. The stock is still wild and wooly, but let’s see if the stock’s latest seven-week, 35% deep consolidation can round out.
Shift4 (FOUR): FOUR remains in its own seven-week rest period (only 19% deep), well above its prior lows (near 30) and even above its recent August nadir (near 42). We’re still watching Toast (TOST) as well, but at this point Shift4 has better numbers and a tighter chart—trading volume is a bit light but we think it can “grow up” when the market turns.
Wingstop (WING): WING’s very powerful comeback in July and August—along with its higher high earlier this month, despite the market weakness—tells us the worst is almost surely over for the stock. The recent dip has found support near the 50-day line, too, which puts it above most every name out there. We think the focus is shifting slowly back to the powerful underlying cookie-cutter story.
Wolfspeed (WOLF): WOLF is starting to get tossed around, but it’s still basically consolidating its big earnings gap and follow-through from August. Of course, anything is possible if the market remains so weak, but we think the stock has “future leader” written all over it for the next bull phase.
That’s it for now. You’ll receive your next issue of Cabot Growth Investor next Thursday, October 6. 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 9/29/22 | Profit | Rating |
| Celsius (CELH) | - | - | - | - | - | Sold |
| Devon Energy (DVN) | - | - | - | - | - | Sold |
| Enphase Energy (ENPH) | 680 | 291 | 8/3/22 | 275 | -5% | Hold |
| Shockwave Medical (SWAV) | 807 | 245 | 7/22/20 | 273 | 11% | Hold |
| CASH | $1,511,654 |