WHAT TO DO NOW: While we’re not aiming to sell wholesale given our large cash position (60% coming into this week), today we’re going to sell the remaining portion of our stake in AppLovin (APP), which is being mauled by a couple of short reports today. We had already sold the vast majority of our stake, but today we’ll sell the rest and hold the cash. Details on that (and other stocks) below.
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The indexes were bouncing earlier today after the recent selling storm, though the sellers have stepped up on more tariff threats—as of 2 pm EST, the major indexes are in the red by small amounts.
After a big 2024 for growth stocks that ended with a crescendo of buying into December, the past couple of months have been tedious, with lots of selling on strength, with the major indexes were unable to decisively get going and with relatively few stocks hitting new highs.
Yes, some names acted well or even popped on earnings, but most that broke out didn’t get very far. Combined with our mixed market timing indicators, that’s a big reason our cash position hasn’t fallen south of 45% (ballpark) since growth stocks first ran into selling in early to mid-December.
And from today’s perspective, that action now looks like a topping phase: Growth stocks have essentially had a multi-day crash, with some faster-moving growth measures falling 15% or more in just five trading days, and with individual leaders off even more (sometimes much more).
The question is what to do from here: We have 60% of the Model Portfolio on the sideline and don’t have large positions in our remaining holding, so a lot of it comes down to portfolio management—if you simply go by the charts, you’ll likely be knocked out of everything, and we’re not eager to sell wholesale at this point, and there’s no question some names could bounce short-term a decent amount.
Right now, we have four stocks that act normally to this point; Argenx (ARGX) which has weakened but is 7%-ish off all-time highs; DoorDash (DASH), which is showing us a loss but has so far held above its 50-day line and prior highs; Duolingo (DUOL), which does have earnings tomorrow (obviously a risk) but is also “only” back to prior support; and Flutter (FLUT), which, again, is down, but not abnormally so.
But we do have three that look sick: AppLovin (APP), which continued its sharp decline today after a couple of bearish reports (from short sellers) were released that claimed fraud (clearly timed for a weak environment); Palantir (PLTR), which has given up its entire recent earnings move; and On Holding (ONON), which saw its breakout fail a couple of weeks ago and is near its 200-day line. Of course, we’ve already sold major chunks of all three (85% of our initial APP position, 70% of PLTR, and we just sold half of ONON recently), which helps a bit.
As we wrote above, we’re not aiming to sell wholesale, but we are going to cut some more today: Even though we’ve already sold the vast majority of our original stake, we can’t ignore the weakness in AppLovin (APP); if you want to hold to see if it can bounce in the days ahead (it’s well off its lows from earlier this morning), that’s fine, but given the meltdown, we’re going to take the rest of our profit off the table and look for fresher leaders once the growth stock correction bottoms out. It’s a disappointing ending, but a great trade overall. SELL APP
The only good news of late is that, with the implosion in growth stocks, it’s made it easier to see which stocks are earlier stage (haven’t been running for a year and already made giant gains) and are holding well. A couple of names like Dutch Bros. (BROS), GE Aerospace (GE) and some medical names like Axsome Therapeutics (AXSM). But we’re not in a rush to buy given the market’s positioning.
We’ll have more on the market and all of our stocks tomorrow’s regular update,
Don’t hesitate to email me directly (mike@cabotwealth.com) if you have any questions.
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