WHAT TO DO NOW:After a few weeks of gradually improving evidence, our Cabot Tides have flashed a green light, while some other measures like our Aggression Index and Two-Second Indicator are improving. There are still many headwinds, not the least of which is the lack of many stocks set up to run—especially among potential liquid, well-traded leaders. All in all, as the evidence has improved in baby steps, we’ll take a couple more baby steps into the market—tonight we’ll add half-sized stakes in Bumble (BMBL) and Shockwave Medical (SWAV), leaving us with around 75% in cash.
Current Market Environment
The major indexes had another good day, today—both the Dow and Nasdaq rose 162 points.
It hasn’t been anything dramatic or clearly decisive, but the market’s evidence has slowly improved in recent weeks—obvious bad news has been mostly ignored, secondary measures have shown a lessening of selling pressures, a few mid-sized stocks have popped above resistance and growth-oriented funds have shown a little outperformance.
And now, this week, the buyers are stepping up somewhat, so much so that our Cabot Tides (and Growth Tides) have flashed a green light, telling us the intermediate-term trend is turning up. That’s clearly another step in the right direction and causes us to take another small step into the market’s waters tonight.
However, we do think it’s still best to go slow for a few reasons, the first of which is our other indicators—while the Tides buy signal is not something we’d ever ignore, we’re also not going to ignore our Cabot Trend Lines (clearly bearish; in fact, the long-term trend of most indexes, funds and stocks remains down) or our Two-Second Indicator (improving, but today looks like just the second day of sub-40 new lows so far). Of course, all of this can change, but going with today’s evidence, there are still headwinds.
Moreover, to this point, very few stocks are really set up for sustained advances—true, we have seen a few exceptions, but for the most part stocks are still hesitating or selling off after testing multi-month resistance, and the uplift of late has mostly come from off-the-bottom names. That’s fine but not something that (in and of itself) usually leads to a sustained rally.
To be clear, none of the above means the rally is doomed—many sustained market upmoves have started in a similar fashion and gained steam over time. However, we do think those are reasons to go slow for now, especially with earnings season (and next week’s Fed meeting) likely to make or break the rally. As always, if the evidence continues to improve (and good-looking stocks head higher, ideally on earnings reports), we’ll extend our line. However, if the rally falters or if leading stocks can’t get going, we’ll mostly hold tight and wait.
All in all, tonight, we’ll add two more half-sized positions, both of which have been on our watch list for a while—Bumble (BMBL), which we think has great potential as the next Match.com, and Shockwave Medical (SWAV), which has all the characteristics of a winner. Both are approaching resistance, so if they get going, we’ll look to average up … but starting with a smaller stake in each makes sense.
Our cash position will still be a hefty 75% after these moves, giving us both plenty of cushion if the sellers re-appear—but also lots of buying power should new leadership kick into gear.
Model Portfolio
We’ll start with our two new additions, though we’ve mostly relayed our thoughts on both in recent issues. Bumble (BMBL) looks like a classic follow-on play to Match.com and Tinder, as it plays in the same sector but has pioneered a few new approaches, the biggest of which is the fact that ladies are the only ones that can initiate a chat (and hence, potentially a date), switching up the power dynamic in a way that many gals (and guys for that matter) find appealing. There’s also less ghosting and fewer bots, all of which has led Bumble to take share (and post solid sales and user growth; earnings were in the black in Q1 and should be this year, too) and quickly become one of the most popular dating apps out there. And don’t forget stemwinder Whitney Wolf Herd, who’s just 33 but came from Tinder and her guidance has obviously been terrific so far. As for the stock, it’s been bottoming out for months and shown some huge upside volume clues during that time, though like so many other stocks, BMBL is fighting it out with resistance (in the 36 area) and is very volatile (it moves a couple points per day from high to low). We’re going to add a half-sized stake (5% of the portfolio) and use a loose loss limit (29 area) that’s under the 50-day line, which the stock has remained above since mid-May. BUY A HALF
We’re also grabbing a half position in Shockwave Medical (SWAV), which has a better mousetrap to treat calcified arteries—the initial products were approved for periphery arteries, and growth there was solid, but the approval for coronary arteries in early 2021 caused business to mushroom, and given the size of that opportunity alone (six million procedures) and the firm’s international expansion (entered major European markets six months ago, entering Japan later this year and it recently got approval in China), growth should remain rapid for a long time. And Shockwave is highly profitable, too, with analysts seeing the bottom line soaring from a loss last year to around $2 per share this year and $3 next—both of which are likely conservative. To be fair, earnings are due out somewhat soon (August 8), and that’s a risk, as is the fact that (yet again) SWAV is battling with resistance (in the 210-220 area). Still, we like the stock’s overall resilience in recent months, including the solid rally since the stock’s mid-May low. If things go belly up, we’ll cut bait, but right here we’re optimistic—we’ll add a half-sized stake and use a loss limit in the 170-175 range. BUY A HALF
Devon Energy (DVN) finally got off its knees in recent days, though today the entire sector was slapped around again—though DVN remains a few points above our mental stop in the 50 area. Frankly, we’re just playing this by the book, but we admit to being very interested in how this turns out: Despite pervasive recession worries and a very hawkish Fed—not to mention good-sized breaks in many commodities (like metals and agriculture)—oil prices are still north of $90 and futures prices are around $80 (next December), which if they stuck would lead to huge cash flows, dividends and share buybacks for Devon and its peers. The August 1 quarterly report will be important, not just to see what the Q2 dividend will be (probably higher than Q1’s $1.27 per share) but also to get updates on the firm’s cash flow outlook (including any effect on inflation, etc.) given what’s gone on. All told, we still advise sitting tight with your remaining shares. HOLD
Halozyme (HALO) continues to act fine, though it’s been subject to the chop we’ve seen from most stocks near their highs, with the stock pulling in sharply for a few days after trying to break out. Still, the damage was limited (support at the prior highs and above the 25-day line), and HALO has ratcheted back up. Earnings (no set date yet but probably within two or three weeks) will be key, but the story, numbers and chart are all in place—hold on if you own some, and if not, we’re fine buying a half position here or on dips of a point or two. BUY A HALF
ProShares Ultra S&P 500 Fund (SSO) has popped above its 50-day line for the first time since April, and with the Tides positive, the picture is obviously brighter. That said, we’ll stick to a Hold rating here given the other headwinds mentioned in the first section—the recent action is solid, but there’s more work to be done. If you’re holding a small position in SSO, hang on, but we’d rather put new buying toward the new additions. HOLD
Watch List
Braze (BRZE): We wrote about BRZE in last week’s issue, and we love the story and the multi-month bottoming process. That said, we need to see the stock grow up further, both in terms of liquidity and sponsorship.
Celsius (CELH): CELH acts great, though some of its peppiness is likely due to rumors that Pepsi could either buy the firm or ink a distribution deal (which could be even more lucrative). A bit of calm action would be tempting.
CrowdStrike (CRWD): CRWD still has work to do, but the stock has actually been gradually trending up for two months and the numbers here (both recent and projected) are about as good as you’ll find anywhere in the market. Keep an eye on it.
Enphase Energy (ENPH): ENPH remains wild, which isn’t ideal, but we’re intrigued—the stock had a big shakeout last week after Congress basically rejected any green energy boost, but shares quickly stormed back and are testing resistance in the 220 area. Earnings are due next Tuesday—let’s see if results please the market.
Li Auto (LI): LI was rejected at resistance near 41 this week, but the pullback thus far hasn’t been out of the ordinary—we still think the next big move is likely to be up as the firm’s extended-range vehicles (sort of an EV and hybrid mix) catch on.
Pure Storage (PSTG): As opposed to a lot of stocks (and nearly all technology names), PSTG looks very much under control, with the massive earnings move in June (biggest weekly volume in more than a year) looking like it cleared the sellers out of the room. We’d like to see some more strength to conclude the trend is turning up.
That’s it for now. You’ll receive your next issue of Cabot Growth Investor next Thursday, July 28. As always, we’ll send a Special Bulletin should we have any changes before then.
| Stock | No. of Shares | Price Bought | Date Bought | Price on 7/21/22 | Profit | Rating |
| Bumble (BMBL) | New Buy | - | - | - | - | Buy a Half |
| Devon Energy (DVN) | 2,414 | 28 | 6/4/21 | 56 | 100% | Hold |
| Halozyme (HALO) | 1,887 | 52 | 7/7/22 | 52 | 0% | Buy a Half |
| ProShares Ultra S&P 500 (SSO) | 1,706 | 47 | 5/29/20 | 50 | 6% | Hold |
| Shockwave Medical (SWAV) | New Buy | - | - | - | - | Buy a Half |
| CASH | $1,648,652 |