January 2, 2025

WHAT TO DO NOW: Happy New Year! December’s weak action has created some decent setups and taken a chunk out of sentiment, both of which are good to see—but the underlying evidence hasn’t changed, with our Cabot Tides negative and few names heading higher. We came into the year with around half the portfolio in cash, and we’re remaining cautious today—our only change is placing Flutter (FLUT) on Hold.

Current Market Environment

The first day of the year has been typically volatile, but also lower, with the S&P 500 down 0.6% and the Nasdaq down 0.7% as of 2:15 pm EST.

Last year was a great one for most major indexes and growth stocks, and we were happy to have been able to latch onto a few bigger winners—the Model Portfolio finished up more than 58%, which was our second-best year since taking over back in 2007.

That said, we also rode into the new year in a cautious stance, and the evidence continues to tell us that’s the right place to be—December overall was a downer, with the broad market getting hit hard and many extended growth stocks pulling in or, in some cases, likely topping out for at least the intermediate term. Our Cabot Tides and Two-Second Indicator remain negative while many growth funds and indexes have also dipped below support. We’ve been holding around half the portfolio in cash for a couple of weeks and will continue to do so tonight.

Now, optimistically, we will say that the month-long selling seen in so much of the market in December (yes, some big-cap indexes were flat to down just a little, but the equal-weight S&P 500 was down 6.6% and many growth funds and measures were off about that much, too) has started to bring near-term sentiment back down in some indicators (including a couple we mentioned in last week’s issue).

Moreover, the weakness and general hacking around has brought more leading growth titles into areas of support. Of course, that means another week or two of selling would be bad news—but it also means a strong rebound in these stocks for a couple of days could offer some intriguing entry points.

Early January is probably the weirdest time of the year, meaning there are tons of crosscurrents (from big investors repositioning portfolios, including those that locked in gains late last year putting money back to work) that can cause wild intraday and day-to-day swings in the market and individual stocks—which makes reading into things difficult for the next couple of days.

The bottom line is that we think remaining cautious for now is the right move given our market timing indicators and the general action of growth stocks … but we’re very flexible and could change our tune if things break the right way.

Tonight, we’ll hold on to our nearly 50% in cash while also giving our remaining names (most of which we’ve booked partial profits in) some rope given the early-January factor. Our only change tonight is moving Flutter (FLUT) to Hold from Buy.

Model Portfolio

AppLovin (APP) hasn’t been able to bounce much from its big early-December selloff, but it also hasn’t fallen further even as the sellers came around for other things in recent weeks—keeping it in short-term no man’s land. We do want to see buyers soon, but we’re willing to give our remaining shares some rope given that the 50-day line (now at 288) is catching up. We’ll stick with our Hold rating, though a move above 360 or so would be a good sign. HOLD

Argenx (ARGX) wobbled a bit near year-end, dipping below its 25-dy line for the first time in a few weeks, though it bounced modestly today and remains in an overall uptrend. While the stock has dipped a touch, the relative performance line perked up a smidge last month as a whole, so a strong rally from here (possibly thanks to any sustained rotation that takes place in the market) could solidify the advance … and even have us averaging up. For now, we’ll stand pat, but we’re watching it closely. HOLD A HALF

Axon Enterprises (AXON) has approached key levels, with the 50-day line near 580, just under this stock’s lows of the past few days; this is also about where the stock closed the day of its giant earnings gap in November. As we’ve written before, big picture, the overall drop isn’t a death knell (about a 16% drop from high to low), but a continued loss of altitude would raise the prospects of a bigger drop, especially with the market having issues—indeed, while we don’t want to overreact to any one day in early January, a decline through the 50-day could have us trimming more of our position. Still, like a lot of stocks, a couple of good days from here would be encouraging, especially if they show some volume, with an eventual move above 640 being positive. Right now, we’re simply holding on and will let the stock tell us what to do. HOLD

Flutter Entertainment (FLUT) has been dripping lower for weeks now, enough for us to change our rating back to Hold. There’s been no specific news for the decline, but one factor is a historic run of favorites (especially in the NFL) covering their spreads—usually good for the public, bad for the bookies. Frankly, if the market were pulling back but still in good shape, we’d be thinking this is a great buying opportunity … and it still could be. But with the stock unable to get out of its own way and the market looking iffy, we’ll go to Hold here with a mental stop in the upper 240s. HOLD

On Holding (ONON) pulled back along with most things last month, likely egged on by the general environment and strength in the U.S. dollar (which has been straight up over the past three months; that can crimp profits in local-currency terms), but so far it’s tested and held the 50-day line a couple of times, which is normal action. Of course, a decisive move back to the 50 area would be iffy and possibly have us taking partial profits, but at this point, we’re thinking the next big move from this rest period will be up. BUY

The sellers caught up with Palantir (PLTR) at the end of last month, which wasn’t a terrible surprise—so far, the dip has taken shares to the 25-day line on low volume, back into its early-December range. PLTR is our largest position (though, at 10% to 11%, we wouldn’t call it large) right now, and we could trim more if this slide doesn’t find support soon, but overall, we’re not seeing any truly abnormal action. Long story short, we’ll stay on Hold here but are watching PLTR carefully given its huge run and the fact that the overall market is under pressure. HOLD

Shift4 (FOUR) has done an admiral job of holding support near its 50-day line during the past month, though upside has been limited due to the market’s weakness. In our hearts, we think FOUR can have another upside run, as the CEO news is likely digested and as business is very likely in good shape, but we’ll continue to stick with the plan—some strength from here would be a good sign, especially if paired with buying in the general market, but a dip into the low- to mid-90s would be a yellow (red?) flag. We advise sitting tight right here. HOLD

Watch List

Astera Labs (ALAB): ALAB is a tricky situation—it’s clearly had a huge run, but it also clearly has a rare growth story and has shown amazing relative strength in recent weeks. We’re continuing to watch it for a potential entry.

DoorDash (DASH): DASH pulled back to its 50-day line and has been hanging around that support area for a couple of weeks. Further weakness from here would be intermediate-term iffy—but a couple of good buying days would be tempting.

Dutch Bros. (BROS): We admit that we’re a bit wary of the restaurant group since the leader (CAVA) has cracked for now, but Dutch Bros. is acting well and has a multi-year, cookie-cutter story.

GE Vernova (GEV): GEV still looks like a liquid leader to us, with a long-term growth story that is very likely to play out, great liquidity and a resilient chart—though the 350 area remains a tough nut to crack.

Reddit (RDDT): RDDT is another name that’s had a big run, but shares have been hacking around for three weeks now as its moving averages catch up. We’re enamored of this story, with a new kind of social media platform that’s tailor-made for advertising and data collection.

Rubrik (RBRK): RBRK has gotten a bit sloppy of late but remains in good overall shape, testing its 25-day line today. Short term, it’ll likely come down to the market, but we highly doubt big investors are done accumulating shares.

That’s it for now. You’ll receive your next issue of Cabot Growth Investor next Thursday, January 9. As always, we’ll send a Special Bulletin should we have any changes before then.

Model Portfolio

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