October 10, 2024

WHAT TO DO NOW: Continue to lean bullish. The market’s overall position remains in a similar position—far more good than bad, though still a few flies in the ointment—so we continue to look to add exposure, but to do so carefully, as many stocks and indexes are battling with resistance. Tonight, we’re going to fill out our position in Flutter Entertainment (FLUT), adding another half-sized stake (5% of the portfolio). We’re also placing Argenx (ARGX) on Hold given its recent action. Our cash position will now stand near 25%.

Current Market Environment

The market faded a bit today as interest rates continued to ramp up, though the retreat was modest, with the S&P 500 and Nasdaq down less than 0.5%, with most growth measures off around the same.

The market generally remains in the same place it did a week ago and, for that matter, over the prior few weeks, too—the weight of the evidence is definitely more bullish than bearish, whether you’re talking about top-down indicators (our core ones are positive) or the action of individual stocks, a bunch of which continue to act well, motoring to new highs. We’re also pleased to see improvement in our Aggression Index, as the Nasdaq has held firm while defensive stocks have finally pulled in.

That’s all to the good and a reason why we’ve been leaning bullish and holding a handful of strong growth titles. That said, the same flies in the ointment are still hanging around—the most glaring of which is that most indexes (Nasdaq, small caps, mid-caps and most growth measures we look at) are still range bound, trading within multi-month ranges.

Plus, while secondary, the fact that Treasury rates continue to rally—the 10-year Treasury yield is up nearly 0.5% in three weeks—is definitely a yellow flag, and we’d note many short-term sentiment measures are once again in complacent territory.

As we’ve written before, the above isn’t necessarily bearish, but it is a sign that big investors are still being selective and picking their spots, so we’re following that lead.

In the Model Portfolio, we’ve been sitting on our hands the past couple of weeks, though tonight, we do have a couple of small moves. The first is that we’re placing our stake in Argenx (ARGX) on Hold; a couple of good days here could still kick things off, but there’s no question the name has been lagging.

On the buy side, we’re going to fill out our position in Flutter Entertainment (FLUT), which churned after its Investor Day, but the selling was contained and now shares are beginning to perk up again.

That will leave us with around 25% cash (give or take)—as usual, we’ll be looking for opportunities to add exposure, but aren’t pushing the envelope given so much of the market has yet to really kick into gear.

Model Portfolio

Up, up, up … AppLovin (APP) continues to defy gravity, with shares breaking out around 93 last month and moving up about 50 points with essentially zero pullback along the way. Obviously, at some point, there will be some selling, and given the fact that the 50-day line is around 103, a good-sized air pocket wouldn’t surprise us. Being objective, we’d also note that the latest rally has come on light volume, which isn’t ideal. Even so, we’re looking at APP as if it’s in the fifth week from a fresh breakout, which means the next pullback “should” find support and give way to higher prices. Long story short, we’re holding on to what we have, though at this point new buyers should either keep it small or look for dips of a few points. BUY

Argenx (ARGX) hasn’t done anything wrong, especially when you consider biotech stocks have been slowly deteriorating in recent weeks. (As we wrote last week, biotechs tend to get pushed/pulled with interest rates, so the backup in rates hasn’t helped.) That said, shares also haven’t gone anywhere since early August and dipped below their 50-day line yesterday. A couple of good days here could see the stock breaking out on the upside—but given the action, we think it’s prudent to go to Hold while using a mental stop in the 490 area for our small-ish stake. HOLD A HALF

Axon Enterprises (AXON) has extended nicely to the upside, zooming north of round-number resistance near 400 and motoring higher from there. Like many leaders right now, the stock is extended to the upside, so after a big post-earnings run from early August, a retreat wouldn’t be surprising. That said, while there’s no surety, the odds favor the next pullback should find support assuming the market and growth stocks don’t completely keel over. We’ll stay on Buy, but aim for dips if you’re not yet in. BUY

Cava Group (CAVA) has continued to act well with its modest late-September dip to the 25-day line leading to another push to new price and RP highs on modest volume. We’re not ones to argue with the trend for long, and the fact that this stock has digested its giant post-earnings move so well in recent weeks (it’s actually tacked on a bit more gains, net-net) is a good sign—while, of course, the underlying story remains as good as ever. (The firm recently launched its first flavored pita chips as it continues to nudge the menu forward.) If you wanted to nibble here, we wouldn’t argue with you, but we’ll officially remain on Hold a bit longer as we look for a higher-odds entry. HOLD

Flutter Entertainment (FLUT) definitely saw some churning after its Investor Day, but this came after a solid breakout and upside advance, with the ensuing pullback never even touching the 25-day line, and today saw a decent rally to the stock’s second-highest close ever. We do think there could be further shenanigans in the 250 area, but we like the overall story, numbers and chart here—thus, we’ll fill out our position, buying another half-sized (5%) stake. We’ll use a mental stop in the 210 area (give or take) for the full position, which makes for a solid risk-reward situation. BUY ANOTHER HALF

On Holding (ONON) has been finding resistance in the low-50s area for the past three weeks, with lots of up-down-up-down action. That said, we’re not going too far with that at this point, as the stock is still above its 25-day line and nearly all the action since Labor Day has been on below-average volume. The 50-day line is near 46 and rising, so further dips are possible, especially if the market hiccups, but the odds favor this rest/retreat giving way to higher prices. BUY

Palantir (PLTR) continues to impress, zooming to new highs this week on solid volume; there’s been no specific news we see for the move, but members of the top brass have been on the horn with bullish tidings here and there—all told, the view that Palantir’s offering is becoming the go-to platform for big, pervasive AI setups among big enterprises continues to grow. Of course, the stock remains extended to the upside (50-day line is down near 34), so some sort of wobble is possible, if not likely, but the entire post-earnings move since August looks like a longer-term kickoff. BUY

Shift4 (FOUR) remains very strong, hitting its highest levels since 2021 in recent days; it’s looking more and more like the move above its August high (near 85) was the breakout, as big investors look ahead toward plenty of gross payment volume, EBITDA and free cash flow growth for at least the next few quarters, if not much longer. (Many of the firm’s big entertainment and hospitality deals should really bear fruit within a couple of quarters, which bodes well for 2025.) Like many of our names, we’ll stay on Buy, though ideally, new buyers can get in on dips of two or three points. BUY

Watch List

Arista Networks (ANET): ANET continues to impress, stretching to new highs as some AI-related names come back into favor (and networking stocks are stronger than most in that theme).

DoorDash (DASH): DASH feels like a liquid leader, with a dominant position in most delivery markets (including newer areas like grocery, convenience and drug stores) that should produce steady top-line and surging EBITDA growth. Tesla’s Robotaxi event could cause some short-term movements, but the overall chart looks tidy.

ProShares Ultra Russell 2000 Fund (UWM): Small caps are still base-building, but we consider it a small plus that they’ve tightened up nicely since the Fed cut despite a big pickup in Treasury rates. The long-term setup is there, and it’s possible a rotation into the broad market could kickstart a sustained run. We’d be looking for a move above 44 as a clue the tide may be turning.

Robinhood (HOOD): HOOD is a Bull Market stock we’ve been watching (and, for a time, owning) for months and, after its wicked summer shakeout, is trying to break out this week. It’s not for the faint of heart, but if more risk-on activity is coming, Robinhood is sure to benefit.

Samsara (IOT): IOT was in the midst of a normal retreat after a big-volume post-earnings run before today’s pop. If it can hold the move, we could take a swing at it.

Zillow (Z): As rates have continued to back up (now nearly a full half point on the 10-year note in the past three weeks!), rate-sensitive stocks have sagged, and Z is no exception. That said, shares have not broken down, are near support— and of course, the upside potential is there if rates stop rising.

That’s it for now. You’ll receive your next issue of Cabot Growth Investor next Thursday, October 17. As always, we’ll send a Special Bulletin should we have any changes before then.

Model Portfolio

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