September 16, 2021

WHAT TO DO NOW: We’re still more bullish than not, but the crosscurrents continue—recently, the top-down evidence has worsened, though many (not all) individual growth stocks are actually perking up. In the Model Portfolio, we have a few names we’d like to take positions on (preferably after a bit more weakness or rest), but tonight we’ll hold on to our 32% cash position. We are, however, going to restore our Buy rating on Devon Energy (DVN).

Current Market Environment
The major indexes are lower so far today, though growth stocks are acting pretty well. As of 2pm EST, the Dow is off 92 points and the Nasdaq is down 13 points, but growth-oriented funds and indexes are up some and most stocks we’re watching are up, some very nicely.

The action in the second half of August was encouraging, but as has been the story of 2021, a lot of that move has been erased so far in September—and that goes for just about everything, whether it’s broader indexes, the S&P 500 and Nasdaq, or growth-oriented indexes and funds like ARKK and IWO.

In fact, the major indexes are again approaching a key juncture—our Cabot Tides have been effectively neutral for a long time, but the recent weakness has driven the NYSE Composite back below its 50-day line and the S&P 500 to its 50-day line (for the 9^th test (!) since the November kickoff). So far, the action isn’t out of the ordinary given what we’ve seen, but if the selling intensifies from here, the overall intermediate-term trend could turn negative.

Thus, from a top-down perspective, the evidence has worsened, with yet another promising rally going up in smoke.

However, given all of the rotation and crosscurrents, we’ve been taking more of our cues from individual stocks in recent months, and we have to say, we’re intrigued by what we’re seeing—a lot of names have hung in there well, with some continuing to spurt higher despite the Nasdaq’s 3% dip in recent days.

Of course, given the crosscurrents, that resilience could change in a hurry, and it’s always possible everything gets “in gear” on the downside if we see the traditional September/October pullback. But we just take it as a it comes, and so far, it’s clear most growth stocks aren’t eager to give up the ghost.

All in all, the mixed evidence continues, so we’re sticking with the same general game plan—holding our strong stocks, ditching anything that cracks support and going slow on the buy side, looking to enter on reasonable dips. (We still think there are a few names we’d be interested if/when they retreat.) Tonight, though, we’ll stand pat with our 32% cash position, though we are restoring our Buy rating on Devon Energy (DVN) tonight.

Model Portfolio
Asana (ASAN) continues to skyrocket, resulting in a situation that’s both good (we own some!) but not ideal (we own just a half-sized stake). Still, we have no regrets as such runaway moves have been few and far between, and given the stock’s newness, this huge run during the past few months should set the stage for even better things down the road—it definitely seems like a new leader that big investors are just starting to build positions in. Indeed, management is thinking optimistically: The CEO recently bought another 750,000 shares of stock and has bought a total of 3.6 million shares in the past three months ($217 million worth!). Insider buying isn’t foolproof, but it’s clear the top brass believes business has a lot of upside ahead.

When it comes to filling out our position, we’re aiming for a proper setup, whether that’s a two-week controlled retreat or a sharp-but-normal shakeout. Thus, if you own some, we advise sitting tight, though if you don’t, starting a position here or (preferably) on dips of a few points is OK. BUY A HALF

Cloudflare (NET) tagged its 10-week line during Monday morning’s growth stock weakness, but it closed well off its lows, steadied itself and bounded to new highs today, albeit on subpar volume. Fundamentally, as demand for its services soars, the company continues to expand its network—it’s now operational in 250 cities worldwide (up from 200 a couple of years ago) and interconnects with 9,800 other networks. A drop below the 117 area would be a near-term yellow flag, but right now the uptrend remains in fine shape. BUY

Devon Energy (DVN) and many of its peers came alive yesterday as energy prices headed higher. That’s nothing new, but the move was notable for both price (it nosed above some resistance near 30) and volume (second-heaviest daily volume since the first of June). Moreover, the entire 14-week consolidation since the stock’s early-June peak looks like a launching pad rather than a top. Could DVN turn tail here and sink back toward the lows again? Yes, it’s possible. But we’re going to lean optimistically and go back to Buy, thinking that even if there are more near-term wobbles, the out-of-this-world cash flow story based on solid oil ($72) and natural gas (up to $5!) prices mean the trend is turning up. We’ll go back to Buy. BUY

DocuSign (DOCU) remains our problem child, having skidded another few percent before finding some solid-volume support yesterday. Our leash isn’t limitless here—another few percent and we’ll cut bait—but the overall chart isn’t awful given the run since early June, and the story is still top notch. Really, what we’re looking for here is what type of bounce can the stock enjoy—a sharp downmove from here would have us looking for greener pastures, but if DOCU can bounce decently, it would hint that a normal base-building phase has begun. Right here, we’ll stay on Hold. HOLD

Dynatrace (DT) just acts solid, notching another new high today. It’s not grabbing any dramatic headlines or commentary, but it certainly feels “under control” by big investors who see it as a high-odds play as the cloud/app movement continue. (925 funds owned shares at the end of June, up from 679 just nine months before.) On the news front, the firm recently announced that it’s expanded a collaboration with Microsoft, with its software intelligence platform now available on the Azure portal, while Gartner revealed that Dynatrace was the most liked application performance management offering among clients. We’ll stay on Buy. BUY

Floor & Décor (FND) looks just fine—while there have been plenty of wiggles, the stock notched a new closing high today. While it’s not going to be a runaway-type stock, we’re optimistic (as we wrote last week) that this third breakout attempt will be the charm, as the short-term (strong housing and construction market) and long-term (cookie-cutter story; continued share gains for hard flooring vs. carpet) outlook remain solid. If you own some, hang on, and if not, you can start a position here or on dips. BUY

Is the prolonged uptrend in the S&P 500 set to finally end? That’s the question right now as we watch our position in ProShares Ultra S&P 500 Fund (SSO), which is testing its 50-day line yet again. To be clear, the 50-day isn’t a magic barrier—you’ll often see slight dips below it (or rallies above it) before things get back on track, but a decisive drop from here would certainly be a change in character. All that said, we’ve been sticking with the trend for months, and so far, this correction is still following the bullish script. We’re holding on to what we own, and if you’re willing to use a tight leash, we’re OK picking up shares here as SSO is standing on top of support. BUY

Watch List
Ambarella (AMBA 153): AMBA is super strong and super volatile, but as we wrote last week, its new computer vision chips seem special.

Dexcom (DXCM 565): DXCM briefly dipped near its 25-day line before popping back. If the stock can chill out for another week or two, or simply shake out a bit, we could start a position.

DraftKings (DKNG 60): DKNG has pulled in a few points of late, but that’s not surprising after its off-the-bottom run in recent weeks. It still needs some seasoning but it’s definitely worth watching.

Lightspeed Commerce (LSPD 123): LSPD remains very impressive—despite a variety of payment stocks acting iffy and larger peer Shopify showing some weakness, this name remains perched near its highs. We do think a pullback is likely, but it should be buyable.

Wingstop (WING 186): WING isn’t going to be the talk of the town, but it appears to be slowly emerging from a long consolidation and has long-term winner written all over it.

ZoomInfo (ZI 68): ZI is more dynamic than WING but is in a similar position—attempting to emerge from a big rest, with rapid and reliable growth likely for a long time to come.

That’s it for now. You’ll receive your next issue of Cabot Growth Investor next Thursday, September 23. As always, we’ll send a Special Bulletin should we have any changes before then.