WHAT TO DO NOW: It’s been a brutal week for growth stocks in general, with the major indexes off some but with more breakdowns than we have seen in a few months. Today’s update involves CrowdStrike (CRWD), which is getting hammered today after an update glitch has disrupted a ton of the world’s operations overnight and this morning. To respect the action, we’re going to sell one-third of what we have, though we’ll hold the remaining small-ish position for now. Many more details below. Our cash position will be just shy of 50%, which we’ll hold onto as we wait for growth stocks to find support.
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Sometimes the unexpected happens in the market, and that’s exactly what happened early this morning, when much of the world’s Windows-based infrastructure went down, and CrowdStrike (CRWD) was to blame, with a faulty update pushed to its customers causing mayhem in the real world, including tons of canceled flights, payment system outages and much more, though fixes have seemingly been pushed and more and more systems are coming back on line.
Now, obviously, it’s a gigantic mishap and a black eye and the stock is getting hammered, though there are a couple of not-as-bad-as-it-sounds factors. First, this wasn’t a cyber-attack as initially feared, which of course would crush its reputation—it turns out it was “only” a glitch in a technical update. Also, the fact that so much of the world’s infrastructure is dependent in part on CrowdStrike is an eye opener.
When news broke early this morning and fears were that it was a global cyber hack, CRWD plunged as low as 275, though as word spread that it was basically a human (quality control) error, the stock rebounded to the 300 area—still down more than 10% from yesterday’s close. For perspective, shares are essentially back down to their pre-earnings level in early June, though still above their 200-day line (near 290) and their April low (near 280) … clearly bad action, though essentially giving up the post-earnings/S&P addition rally.
Fundamentally, this will obviously be a black eye, which is what the market is discounting this morning. But the question is whether this is an event similar to Chipotle back in 2015-2016 (when it had awful quality control, causing tons of people to get sick—and causing customers to flee and crushing the stock for a couple of years), or whether it’s a one-off event that has mostly been discounted.
We’re not afraid to ditch things when they crack, but this is obviously a highly unusual situation. Even so, one of our main thoughts when this sort of thing happens is to make sure a bad situation doesn’t get much worse: Thus, we’ll sell one-third of what we have this morning, respecting the stock’s plunge today (not to mention the weakness it and other growth stocks endured earlier this week), though we’ll hold on to the small-ish remaining stake for now and see if the stock can find support in the hours and days ahead.
To be clear, if things get out of hand on the downside (below the 200-day line), we’re not going to just hold and hope—especially in what has turned into a very rough environment for growth stocks. We’ll send another special bulletin today if need be. But given the evidence in front of us and our already-large cash position, we’re willing to see if the stock can find support from here.
Don’t hesitate to email me directly at mike@cabotwealth.com with any questions.
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