It doesn’t take a proprietary market timing system to see that the evidence has been weakening during the past few weeks—and especially during the past two weeks. That said, the major indexes have refused to give it up, with the big-cap indexes holding near their 50-day lines and, frankly, with more than a few high-relative-strength stocks holding in there. Even so, given the selling, we think it’s best to stay close to shore right now: We’ve moved our Market Monitor to a level 4, which isn’t a sign to sell wholesale, but to limit new buying in general while tightening stops and holding a good amount of cash.

This week’s list surprisingly still has a lot of resilient growth names, which we continue to find interesting given the selling that’s been going on. Our Top Pick is a well-sponsored medical firm with solid growth and a powerful recent breakout.

The market has gotten a lot bumpier in November, though the major indexes haven’t given up much ground. That’s because even as the air comes out of the (perhaps overinflated) artificial intelligence balloon of late, investors are instead rotating into the many under-loved names in other sectors. Today, we add a stock in one of those underappreciated sectors. It’s an educational company that Carl Delfeld recommended to his Cabot Explorer audience last month. And the stock is having a solid year.

Details inside.

Despite a frantic week of heavy sector rotation, the indexes managed to hang in there. Essentially, lofty tech valuations in the AI and growth spaces are now in question, and that hot money poured into defensive sectors. In the end, the S&P 500 eked out a +0.08% gain, the Dow rose +0.34%, and the Nasdaq Composite lost -0.45% last week.

Despite a frantic week of heavy sector rotation, the indexes managed to hang in there. Essentially, lofty tech valuations in the AI and growth spaces are now in question, and that hot money poured into defensive sectors. In the end, the S&P 500 eked out a +0.08% gain, the Dow rose +0.34%, and the Nasdaq Composite lost -0.45% last week.

The market’s evidence has clearly worsened the past two weeks and, really, there hasn’t been any money made in growth stocks since late September, when more names began to flash abnormal action and crack. We’ve mostly been selling in recent weeks, building up a big cash position of 56%, and tonight we’re hanging on to that as our Cabot Tides is on the fence, Two-Second Indicator is negative and many stocks are headed south. To be fair, the indexes are hanging in there and we still have many stocks we like (we write about some liquid biopsy stocks and other potential leaders in tonight’s issue), so we’re staying flexible--but right now it’s prudent to hold our cash and see how this selling wave plays out.

Hopefully, by the time you read this, the government shutdown will be over (at least for a couple of months). It’s about time! I was lucky on my trip to Florida a couple of weeks ago that I only sat on the tarmac for two hours, as things certainly have become much worse for travelers around the country since then.

Who knows if Congress will work out the kinks by January, but at least it’s some progress.

The market has been terrific. But uncertainty is growing, particularly with regard to the economy and artificial intelligence.

The government shutdown is over. Tariffs are increasingly less of an issue in the market. But the economy is about to take center stage. There haven’t been the usual economic reports during the shutdown and there is a risk that when they do finally come out the market could be startled.

At the same time, there has been a tug-o-war regarding the AI trade, and Wall Street doesn’t know what to think. AI has driven the market higher for most of the last three years. The future direction of AI and technology will determine the future direction of the overall market.

Fortunately, there are trends and stocks that are not overly dependent on the unpredictable technology sector or the state of the economy. Electricity demand is soaring because of artificial intelligence data centers, electric vehicles, and manufacturing onshoring. The best health care companies will thrive with the enormous tailwind of the aging population megatrend.

Electricity demand will boom, and people will get sick and need medicine regardless of the near-term gyrations of the economy or the market. In uncertain times like this, I like to go with bankable trends.

In this issue, I highlight two of the very best stocks to buy in the areas of utilities and health care.

Despite a promising start, last week turned into a rough one for the market. A mix of rising economic uncertainty and heavy tech-valuation concerns weighed on sentiment, driving the market to a risk-off environment. By week’s end the S&P 500 had fallen 1.6%, the Dow Jones had slid 1.2%, and the Nasdaq Composite had dropped 3%.

On balance, there’s little doubt the evidence worsened last week, and yet, most leaders didn’t crack, and the big-cap indexes didn’t either, so the question was whether a “real” correction was getting underway … or this would be yet another shakeout-type decline that gives way to higher prices. So far, of course, it’s looking like the latter. On Friday’s update, we dropped our Market Monitor to a level 6, but we’re going to quickly change course and go back to 7 today—and then stay flexible as we see whether a year-end run is getting underway or whether more volatility is coming.

This week’s list again has a growth tilt to it, which we find encouraging given the selling we saw in many areas of the market of late. Our Top Pick is a steadier leader in the AI (and solar) space and is testing its 10-week line for the first time—look to enter on strength and use a tight-ish percentage stop.

The market took a few lumps last week but is recovering nicely today. We’ll see which direction it goes from here now that third-quarter earnings season is winding down. Yet again, earnings did more help than harm, providing a floor for stocks to help counteract some of the unfavorable headwinds (high valuations, record-long government shutdown, accelerating job cuts by major corporations) threatening to derail them. Today, we add one of the bigger earnings season winners, a mid-cap biotech that has been beaten up for a couple years but is staging a comeback that got a welcome boost from its late-October report. It’s a stock that got Mike Cintolo’s attention in Cabot Top Ten Trader.

Details inside.

Despite a promising start, last week turned into a rough one for the market. A mix of rising economic uncertainty and heavy tech-valuation concerns weighed on sentiment, driving the market to a risk-off environment. By week’s end the S&P 500 had fallen 1.6%, the Dow Jones had slid 1.2%, and the Nasdaq Composite had dropped 3%.

Despite a promising start, last week turned into a rough one for the market. A mix of rising economic uncertainty and heavy tech-valuation concerns weighed on sentiment, driving the market to a risk-off environment. By week’s end the S&P 500 had fallen 1.6%, the Dow Jones had slid 1.2%, and the Nasdaq Composite had dropped 3%.

The day of reckoning has arrived. The summer is over. It’s after Labor Day. What will sobered-up investors see when they really start paying attention again?

The post-summer investor can be cranky. That’s why September is historically the worst-performing month in the market. Combine that fact with a market that is within a whisker of the high with plenty of uncertainty swirling around, and you have a recipe for potential turbulence.

WHAT TO DO NOW: The market remains in good shape as we roll into the long weekend, and we’re happy to see some growth stocks rebound in recent days, with today being a solid performance. That’s not a signal to cannonball into the pool, but with a huge cash position, we’re doing some buying tonight, buying another 3% position in GE Vernova (GEV) and starting a half-sized stake in MP Materials (MP). We’re close to adding some other names, too, but we’ll start with these moves and go from there. Our cash position will be around 49%.

Small caps shot higher last Friday after Fed Chair Jerome Powell indicated his willingness to consider a September rate cut.

On Friday, the S&P 600 SmallCap Index jumped by 3.8%, blasting through the 1,400 level that has served as intermittent overhead resistance in July and August. The index also broke through the 1,424 level, which the index jumped to following the weak jobs report a couple weeks ago.

It’s been a rough few years for the housing sector.

Ever since the Fed raised interest rates to multi-decade highs in 2022/2023, both housing starts and existing home sales have fallen off a cliff in the U.S. Housing starts peaked at 1.82 million in April 2022; they dipped as low as 1.28 million this May, a 30% dropoff. Existing home sales have fallen even further, from a 6.6-million-unit peak in January 2021 to a 3.9-million-unit nadir this June – a 41% haircut.

The market is solid. It is within a whisker of the high. But this is the last week of August. What will it do when investors start really paying attention again after Labor Day?

There has been some back and forth recently. The indexes pulled back as technology and the AI trade ran out of gas. But then stocks rallied again after the Fed Chairman indicated at the Jackson Hole speech last week that the central bank would finally cut the fed funds rate in September. Wall Street loves rate cuts.

A theme that has emerged in the last couple of weeks is rotation out of this summer’s high-flyers and into some of the market’s biggest laggards of recent months. While this is encouraging from our perspective, especially since it bodes well for some of the turnarounds in our portfolio, it’s also a reason for embracing a measure of caution, as it shows that the broad market still isn’t firing on all cylinders.

Small caps raced to multi-month highs early last week and, despite the weakness in the tech-heavy Nasdaq this week, small caps are holding up relatively well.

The iShares Core S&P Small-Cap ETF (IJR) is trading right around 114, which was the zone of overhead resistance in July that the index punched through last Wednesday.

Historically, small caps – and especially small-cap value stocks – have tended to do well during the beginning of rate-cutting periods. This puts a lot of pressure on Fed Chair Jerome Powell’s speech tomorrow in Jackson Hole.

“Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.” -Sir John Templeton

Tech stocks and a couple of Explorer stocks are having a tough week, but the rest of the market is calm as investors await Federal Reserve Chair Jerome Powell’s speech on Friday at the central bank powwow in Jackson Hole, Wyoming.

The market’s tectonic plates are shifting.

Last week, I wrote that big tech – namely, the top 20 stocks in the S&P 500 by market cap – had led the way as the market emerged from a sharp late-March/early-April downturn and stretched to new all-time highs earlier this month. Now they’re retreating, with growth stocks – as measured by the Investors’ Business Daily 50 (FFTY) – off roughly 8% in the last week, with some big names (CRWV, -55%; PLTR, -22%; APP, -17%; SMCI, -31%, etc.) plummeting much further than that.

Just when the market appeared vulnerable to selling pressure, news from an unexpected source rode to the rescue, lifting stocks.

On Tuesday, the Labor Department announced that inflation rose 2.7% in July from a year earlier, which was the same as the previous month and up from a post-pandemic low of 2.3% in April. “Excluding the volatile food and energy categories, core prices rose 3.1%, up from 2.9% in June,” according to the Associated Press.

The bull market has become top-heavy again.

Since the early-April lows, the top 20 stocks in the S&P 500 by market cap – nearly all of which are in the technology sector, and fueled in some way by the artificial intelligence bonanza – are up an average of 40.6%, versus a net gain of 27.9% for the index itself in that time, according to DataTrek Research co-founder Jessica Rabe.

We are all trying to digest the substance of “Liberation Day” and better understand what lasting impact it will have on global trade, the market, stocks that we own and those we are considering buying.

We are all trying to digest the substance of “Liberation Day” and better understand what lasting impact it will have. Suffice to say, there are a lot of ways this could go. But one thing is for sure – we’re in uncharted territory.

Soleno Pharma (SLNO) Pops 40% on FDA Approval

Just a quick reminder that, as per last week’s Special Bulletin, the March Issue of Cabot Early Opportunities will be published next Wednesday, March 26. Among the reasons for pushing the Issue back a week is that it will allow time for new portfolio additions to reflect today’s Fed decision to hold rates steady and the updated Summary of Economic projections (SEP), which implies a total of two 25-basis-point cuts this year.

Insiders at two of our Cabot Cannabis Plus Insider Portfolio names just made large purchases of their company’s stocks. Besides cannabis, I have followed insider activity overall for a few decades. These are significant buy signals, in my experience.

This Market. March Issue Moved to the 26^th

WHAT TO DO NOW: The growth stock meltdown continues, with the major indexes and individual names under heavy pressure again today. Already with nearly 80% in cash, we’re not eager to sell wholesale in the Model Portfolio, but we also won’t just hold and hope. Today, we’re going to sell half our position in Flutter (FLUT), which has fallen sharply this week. We’ll hold the rest of our names as well as our 84% cash hoard.

Sell Reddit (RDDT) and Second Half of FTAI Aviation (FTAI)

LandBridge (LB) Reports

A few Cabot Options Trader subscribers have asked me about ways to protect gains in their portfolios, so I thought I would write to everyone with a couple of strategies using options to hedge your portfolio.

A subscriber recently asked me if I keep a journal of my trades. Many traders keep journals so they can look back at their trades and evaluate what they did right and what they did wrong.

Want to know how the big institutional investors use options? Here is an example of how one trader spent $132 million on three technology stocks.

Options trading has its own vernacular. To know how to do it, you need to know what every options term means. Here are some of the basics.

Our Cabot Top Ten Trader’s market timing system consists of two parts—one based on the action of three select, growth-oriented market indexes, and the other based on the action of the fast-moving stocks Cabot Top Ten features.