WHAT TO DO NOW:Remain defensive, but pay attention. During the past three-plus weeks, the market has put itself in position to flip a few indicators to the bullish side of the fence. If it happens, we’ll put a little money to work (likely going slow given the other headwinds that still exist), but first, we need to see it—a couple of good days could do the trick, but until then, we’ll remain patient and defensive. We have no changes tonight, but we’ll be on the horn if we do in the days ahead.
Current Market Environment
The major indexes are down modestly today after the European Central Bank laid out a plan to tighten policy. As of 215 pm, the Dow was down 157 points and the Nasdaq was off 129 points.
The long and short of the market’s recent action is that things continue to improve—but not quite enough to flip any indicators or get us off the sideline.
Our Cabot Tides remain on the fence, and if the market can push higher from here, a buy signal could be just a couple days away. But as we frequently write, close doesn’t count, so we’re still keeping an eye on it.
It’s a very similar situation with our Growth Tides, with the funds we track above their 25-day moving averages … but those moving averages are flattening out, not advancing yet.
Same goes for our Two-Second Indicator, which we wrote about last week. New lows have definitely dried up pretty well, but they can’t quite get down to levels that would generally confirm the sellers have left the building. If you’re interested, the past five readings on the NYSE have been 28, 25, 54, 66, 51 and around 80 today—not terrible, but we want to see a few days in a row of sub-40 readings, and it would also be nice if the Nasdaq wasn’t seeing triple-digit readings every day.
And then there are individual stocks, which to keep with the theme, have improved, with many rallying nicely off their May lows and into some resistance … and, so far, many names have held those gains, which is something of a character change. Still, few have punched through any tough resistance, with a couple that tried quickly smacked back down.
Really, we’re just playing things by the book at this point—if we get a green light or two, we’ll put a little money to work; as we wrote in the last issue, that probably means something like two or three half-sized positions, but we’ll see what things look like if/when it happens. And, of course, we’d aim to build from there if the market and potential leaders act well.
But until then, we’re content to stand pat: We’ve spent this long remaining mostly in a defensive stance, and we’re ready to take some steps back into the market’s waters, but there’s no harm in waiting another couple of sessions to see how things shake out.
Model Portfolio
The Fed has hiked rates twice, with another 1% of rate hikes at least likely to come and is running off its balance sheet starting this month; the European central bank is getting in on the tightening act; and there are fears of a recession. If you had told us this a year ago, we’d scoff at the idea that oil prices would be elevated—but they are, and in fact, they continue to push higher, with near-term contracts north of $120 and even out months (December 2023) north of $90. As for Q2, prices have averaged $107 so far, up from $95 last quarter and, if it sticks throughout June, should lead to another massive cash flow quarter for Devon Energy (DVN)—its latest presentation shows such prices would lead to something like $2.50 in free cash flow per share for Q2 and a dividend likely north of Q1’s $1.27. But even that will probably prove conservative: Devon announced a bolt-on acquisition (meaning they’re buying acreage that sits next to stuff they already have the rights to) last night in the Williston Basin, bringing 38,000 net acres with more than 100 top-notch drilling locations (and plenty of others, too), all of which will be immediately accretive to all cash flow metrics (3% to 5% bump) and won’t affect any reduction in debt, either. (Devon is going to bump its fixed dividend to 18 cents per share, per quarter, from 16 cents, after the deal is final.) As for the stock, it continues to look fine, on track for new closing highs today, though buying volume has vanished of late and some sort of big shakeout (given all the good news and extended advance) wouldn’t shock us. Even so, if you’ve been following along, we’d simply hang on and follow the trend. HOLD
ProShares Ultra S&P 500 Fund (SSO) had a quick double-bottom in May and showed some nice power (both breadth and volume) in the pre-Memorial Day run-up—and, as opposed to most bounces this year, this one has stuck, with the S&P 500 (and SSO) trading in a tight range. That’s a nice step in the right direction—and the tight action is usually a constructive sign—but we’re looking for more than just “not going down right now.” All in all, though, with the market’s evidence taking a few steps in the right direction, we’re comfortable holding onto our SSO position. As a heads up, if you don’t own any, we wouldn’t buy right here, but you could consider starting a small position if the Tides turn positive. HOLD
Watch List
Albemarle (ALB) and Livent (LTHM): Both stocks shook out hard after breakout attempts, but both have steadied themselves (especially ALB). There are fears that lithium could be near peak pricing now, but there’s little doubt demand should remain hot as EVs grab market share.
Blackstone (BX): We remain very intrigued by BX, which has a bit lower volatility than some other names we’re watching and is “just” 23% off its high despite the carnage in equities, fixed income, some wobbles in real estate and leading economic indicators looking sick.
Celsius (CELH): CELH zoomed from a low near 40 in May up to 60 after earnings and pushed to 70 two weeks ago—and since then, it’s done nothing, which we view as a good thing and a potential character change. (Strength in CELH and most every growth stock has been sold into for months.) The tricky part here is that there’s still tons of overhead—CELH peaked in November around 110—but the growth and retail-oriented story here is hard to beat.
Enphase Energy (ENPH): Solar stocks have ramped of late as import tariffs have come off, but the story is larger than that—Enphase’s best-in-class microinverters should see increasing demand for years, with Europe providing an added tailwind due to the war. A little calm action would do wonders for the chart.
Halozyme (HALO): HALO remains in great shape, and it has just about all of the characteristics of a winner we look for. We think an added bonus could come from its sector (biotechs), which have generally been laggards for years, but we think that could change in the next bull run. The stock’s recent dip was well-controlled and the stock is primed to test all-time highs—if the market cooperates.
Pure Storage (PSTG): We got booted from PSTG in late April just before the market’s final flush, which took this stock much lower—but another great quarterly report caused a huge gap up (heaviest volume since August 2020). There’s resistance right here, but further strength would go a long way toward telling us the worst has passed.
Shockwave Medical (SWAV): SWAV got a boost this week after it was announced it would be added to an index—a near-term positive that often leads to a soft patch after the addition—but shares are back to within 24% of their highs and the overall chart pattern (not to mention out-of-this-world numbers) remains intriguing.
That’s it for now. You’ll receive your next issue of Cabot Growth Investor next Thursday, June 16. 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 6/9/22 | Profit | Rating |
| Devon Energy (DVN) | 2,413 | 28 | 6/4/21 | 79 | 181% | Hold |
| ProShares Ultra S&P 500 (SSO) | 3,410 | 47 | 5/29/20 | 52 | 11% | Hold |
| CASH | $1,671,017 |