WHAT TO DO NOW: The major indexes are bouncing some this morning, but growth stocks remain mixed, and after last week, many are damaged. We’re going to sell the rest of our small CrowdStrike (CRWD) position, as not only is the stock fading again, but we think perception has likely been crushed and could stay that way. That will leave us with 54% in cash—that’s too high given the top-down evidence, so while we’ll hold onto it for the moment, we could put some back to work this week if things shape up a bit.
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The major indexes are bouncing this morning, with the S&P 500 up 0.7% and the Nasdaq up 1.1%, and while growth stocks are lagging again, many are flat to up on the day.
The evidence remains decidedly mixed—from a top-down perspective, things look good, with all three of our market timing indicators still positive, and the breadth surge seen earlier this month was rare and should lead to good things down the road.
However, growth stocks have turned very messy, whether you’re looking at broader measures (the IBD 50 Index clearly broke intermediate-term support) or individual names, many of which have fallen by the wayside. To be fair, there are still a lot of stocks that are wobbly but haven’t cracked, and with the firming up in the broad market, there are a good number of names set up well as we head into the meat of earnings season.
Altogether, that sets up a clear game plan: If we see the market rebound and fresh names pop on earnings, there should be plenty to sink our teeth into—but if not, further damage to leadership could usher in further weakness and create a “real” summer correction.
As for the Model Portfolio, we sold part or all of three names last week—UBER, PSTG and some of our CRWD position—and today we’re going to let go of the rest of CrowdStrike, which has sliced through longer-term support areas (and last week’s nadir). Eventually, the stock could bounce, but we believe investor perception has turned sharply negative and could stay there for a while and, given the prior run and big valuation, there could easily be more selling if the market weakens further. We’re going to sell the rest of our small position and look for greener pastures. SELL CRWD
This move will leave us with a giant 54% cash position, which, given our indicators, is way too high. That said, we’re not into buying falling knives either—tonight, then, we’ll hang onto that cash hoard, but we could put some back to work if the market and growth stocks stabilize this week.
Don’t hesitate to email me directly at mike@cabotwealth.com with any questions.
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