WHAT TO DO NOW: Remain defensive as the ferocious selling in growth stocks continues. Today’s bulletin concerns Duolingo (DUOL), which reported a fine quarter and better-than-expected outlook—but the stock is cracking nevertheless. We’ll cut bait here, leaving us with around 72% in cash.
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The indexes are bouncing a bit this morning after a down open, with the big-cap indexes up between 0.4% and 0.8% as of 1030 am EST.
We’ve essentially seen a crash in many growth and glamour stocks during the past two weeks, with just about anything that’s enjoyed a good multi-month run melting down, be it on news, earnings or simply “regular” selling. Our Cabot Tides, Two-Second Indicator and Aggression Index are all negative, which, when combined with the maelstrom among individual stocks, has us playing defense.
Near term, a bounce is certainly possible, and for some stocks, it could be solid percentage-wise given how far they’ve fallen … though the fact that the Nasdaq hasn’t been able to get off its knees at all in the past few sessions isn’t a good sign. Still, with a lot of cash already on the sideline, we’re not eager to sell wholesale—though we are forced to take action if something clearly cracks.
Today, that means having to sell in Duolingo (DUOL), which reported a fine quarter last night, with sales (up 39%) and EBITDA (up 49%) topping expectations as subscribers (up 43%) and daily active users (up 51%) surge and with the outlook also coming in a bit ahead of views—but shares are imploding nevertheless, with the stock clearly breaking down. We’ll cut the loss here and make sure a bad situation doesn’t get worse. SELL DUOL
That will leave us with something like 72% cash, and we have other stocks that are obviously under pressure. That said, at this point, some decisions are mostly about portfolio management—if you go by the charts alone, you could easily be all in cash, which could be the right move … but usually isn’t when looking at history. Don’t get us wrong, we never just hold and hope, but given our cash and recent wave of selling, we’ll sell DUOL and hold our remaining names for now.
Don’t hesitate to email me directly (mike@cabotwealth.com) if you have any questions.
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