WHAT TO DO NOW: The market’s selloff this week is accelerating today, once again led by growth stocks. The Nasdaq is fully in re-test mode at this point, and while many stocks are showing some relative strength overall, we remain cautious given the selling with our growth-heavy indicators (Growth Tides, Aggression Index) looking poor. We sold TransMedics (TMDX) in last night’s issue, and today we’re going to cut bait with ProShares Russell 2000 Fund (UWM), which will leave us with around 49% in cash.
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What was a very bad week for the market and especially for growth stocks coming into Friday is only getting worse, with the Nasdaq again leading the way, down 2.5% while chip stocks are down another 4.4%, though every major index is clearly in the red.
While most indexes are still in wide ranges, four of the five we track for our Cabot Tides have sliced through their 50-day lines, and our Growth Tides are even weaker, with things like the equal-weight Nasdaq 100 (QQQE) and the IBD 50 Index in rough shape.
All in all, it certainly seems like a re-test/bottom-building effort is underway; how it plays out (a full re-test, a choppy period, a bigger meltdown) is unknown, but we’re looking to (a) remain cautious during the process, for as long as it lasts, but also (b) give some relatively resilient names (even if they take the occasional hit) a chance to hold up.
Despite today’s action, most of our names are still showing relative strength overall, holding miles above their month-ago lows even as the Nasdaq is about 80% of the way back down to its closing low.
However, given the action of the market and our indicators, we are going to sell our half-sized stake in ProShares Ultra Russell 2000 Fund (UWM), which isn’t able to escape the market’s pressures. Eventually, if/when small caps break out, we could revisit UWM, but right now we’d rather be out of any leveraged long index funds should a re-test (or worse) be coming. SELL
That move will boost our cash position back to nearly 50% (just shy of it), which provides us a good amount of cushion. As always, we won’t be afraid to throw other names overboard if need be, but we’re willing to give resilient names some rope.
As always, we’ll be in touch with any changes, and don’t hesitate to email me directly (mike@cabotwealth.com) if you have any questions.
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