Current Market Outlook


Earnings season. The upcoming U.S. elections. Spiking COVID positives and accompanying Europe lockdowns. All told, what was a cleaner situation a couple of weeks ago has turned into one with a lot of crosscurrents, and that has caused a buyers’ strike of sorts, with the major indexes and many leaders pulling back of late. It’s not a disaster, but today’s action has put the intermediate term back on the fence; basically, it looks like the market is still in a consolidation phase after the big March-through-August rally. It’s a similar deal with leading stocks, as many have taken on water, though few have cracked. (In fact, we see a lot of good setups out there should buyers step up soon.) All in all, we’re not making any huge moves, but we’ll knock our Market Monitor down a notch and keep a close eye on things.

This week’s list is an interesting mix of growth and turnaround situations, including a couple that have their hands in both cookie jars. Our Top Pick is Align Technology (ALGN), which just galloped out of a two-year base after earnings. Aim to buy on weakness.

Stock Name	Price	Buy Range	Loss Limit
Align Technology (ALGN)	448.51	420-440	375-390
AAXN (AAXN)	101.69	99.5-102.5	90-92
Exact Sciences (EXAS)	107.06	103-107	91-93
The Gap, Inc. (GPS)	17.75	19.5-20.5	17-17.5
General Motors Company (GM)	36.83	34-36	31-32
GrowGeneration (GRWG)	17.75	16.5-18	14-15
MercadoLibre, Inc. (MELI)	1270.86	1180-1240	1070-1110
NIO Limited (NIO)	25.86	23.5-25	20.5-21.5
Shift4 Payments (FOUR)	55.98	51.5-54	46-47.5
Square, Inc. (SQ)	176.77	164-171	148-152

With the election just around the corner, there’s a lot of uncertainty in the air. Nevertheless, the bull market is alive and well, as both of Cabot’s trend-following market-timing indicators remain positive, so I continue to recommend that you be heavily invested.

Today’s recommendation is an old friend that is back in the limelight as the online world is increasingly hungry for software that enables machines to understand human voices. It’s a good story, and the stock is on a good pullback now.



As for the current portfolio, there’s just one sell (for a small profit), to make room for the new recommendation.

The overall evidence continues to lean bullish, but growth stocks are on a wild ride, first selling off in August/early September, then rallying for a few weeks before backing off again in recent days. We remain optimistic, but are still taking things on a stock-by-stock basis, pulling the plug on laggards while aiming to put money to work in potential new leaders. This week, we let go of Wingstop on Monday, leaving us with around one-quarter of the portfolio in cash.

In tonight’s issue, we write more about our thoughts on the market and our stocks, talk about one recent sell we wish we had back and dive into two secondary indicators we’re watching closely to tell us when the market (and growth stocks) will decisively break out.

In October’s Issue of Cabot Early Opportunities we zero in on four software and internet companies that are benefiting from a variety of tailwinds, including two that are finding success after years of less-than-stellar performance. We also revisit an old MedTech friend that helps deliver drugs and vaccines around the world.

Enjoy!

This week’s idea is a stock in a hot sector, though can be volatile day-to-day.

The bull market is alive and well, as both of Cabot’s trend-following market-timing indicators are now positive, so I continue to recommend that you be heavily invested.

Today’s recommendation is a fast-growing company helping businesses in the cloud, one of today’s major growth themes. Aggressive investors should love it.



However, the addition of this stock means I need to sell one, and the unfortunate victim is the stock that’s our biggest loser (not that we have many).



Full details in the issue.

Current Market Outlook


We like to go with the evidence that’s in front of us at any given time, and if you do that today, you’ll see that most of the key evidence continues to look solid—the intermediate-term trend of the major indexes is tilted higher (though there’s still some resistance at the early-September highs to chew through), while more and more leading stocks are acting constructively; most have pulled back reasonably (so far) after heady runs during the prior three-plus weeks. Of course, we’re not leaving our brains at the door either, as earnings season (which ramps up this week in a big way) and the upcoming U.S. elections certainly have the potential to carve out a few potholes, while sentiment has picked back up after the August/September dip. Thus, we remain flexible and think picking buy points is vital, but overall, we remain mostly bullish.

This week’s list has a ton of potential pullback buys, though you have to be aware of earnings dates. Our Top Pick is Beyond Meat (BYND), which is enjoying a normal breather and looks to be approaching a good risk-reward entry point.

Stock Name	Price	Buy Range	Loss Limit
Avalara (AVLR)	153.44	147-152	132-135
Beyond Meat (BYND)	183.98	178-185	153-156
Bill.com Holdings (BILL)	116.15	110-114	97-100
Carvana (CVNA)	213.52	207-220	180-187
Deckers Outdoor Corp. (DECK)	253.08	238-246	218-222
Invitae (NVTA)	48.38	47-49.5	41-42.5
Monolithic Power (MPWR)	312.85	300-310	270-275
Paycom Software (PAYC)	383.11	360-375	320-327
Plug Power (PLUG)	16.39	15.6-16.8	13.5-14.0
SunPower (SPWR)	17.62	16.5-17.5	13.5-14.5

Market volatility has eased a bit this past month, with the Dow Jones Industrial Average gaining almost 1,000 points. The service industry, according to ISM, improved, and the unemployment rate dropped to 7.9% for September.

As you’ll see in our Advisor Sentiment Barometer and Market Views, sentiment remains about the same. It seems investors are awaiting the election results before they make any big moves.



Nonetheless, our contributors have been very busy selecting ideas that look interesting—no matter how the election turns out.



We begin this issue with our Spotlight Stock, a specialty chemical company that is growing its global market share. In my Feature article, I explore the catalysts that are driving industry growth, as well as the unique properties that should keep our Spotlight Stock in an industry-leading position.



Moving on, our Growth ideas include companies in the retail, electronics, and e-commerce sectors. In Growth & Income, you’ll find a transportation stock and a restaurant business. Value stocks are still lagging, and remain heavily discounted, and here, we offer two food producers.



We include one Financial stock, operating in the pawn store sector, and in Healthcare, our contributors recommend companies in the medical equipment, therapeutics, diagnostic monitoring, and pharmaceutical sectors.



Technology companies continue to be the market darlings, and this month, we feature ideas from the enterprise software, cloud database, big data, and e-commerce industries. In Energy & Resources, we offer a gas company, a utility, and a gold miner.



Our Low-Priced stocks include a coal producer, biotech, and a maker of CBD products. We offer banking, asset management, food producers, and a refiner in our Preferred & High Yield section. And we also include a Short-Sale candidate from the restaurant/entertainment sector.



Lastly, in Funds & ETFs, our offerings this month focus on biotech, health sciences, and blue chips.



There’s a lot of uncertainty today—with a fiercely fought presidential election, and especially, with the COVID-19 pandemic. Fortunately, the markets seem to be holding up well, and I think they’ll continue to do so post-election results. In the meantime, it is my hope that you and your families stay healthy.



As always, please don’t hesitate to email me with your feedback and questions. My address is nancy@cabotwealth.com.



The next Wall Street’s Best Investments issue will be published on November 19, 2020.

Remain cautious on the buy side, but continue to hold your top performers. Our Cabot Tides and Two-Second Indicator are both negative, which tells us to hold some cash and cut back on new buying. At the same time, many growth stocks (including a few we own) continue to act well, so we’re also sitting tight with our strong, profitable stocks.

The market deteriorated further this week, so dividend investors should continue to act cautiously. While the major indexes staged a nice comeback yesterday, it isn’t enough to erase the damage done at the end of last week.

Last week, Jim Cramer did a TV segment on “broken companies” vs. “broken stocks.” His point bears repeating.

Despite the weakness in the broad market, most of our stocks have held up well. Over that past week, not one of our remaining stocks fell, and only Primo Water (PRMW) failed to move at all. Our average gain of 3.4% this week was almost 4% better than the S&P 600 Small Cap Index.

Stock market action will likely moderate as investors, looking for bargains, will step in and buy stocks, although once-a-week tumbles could reappear on a regular basis. Hold conservative and defensive stocks to avoid large losses.

The iShares EM Fund has been jumpy, but is still well above its 50-day moving averages, keeping our Buy signal in place, if a little bruised.

The stock market has begun to recover from last week’s war of words-induced selloff, and I’m moving one stock back to Buy today. However, it’s not time for the all-clear yet; last week’s selloff was preceded by significant deterioration under the surface of the market, so we’ll need to see more proof that the bulls are back before jumping back in the water.

We’ve seen before how Trump’s shoot-from-the-hip approach to foreign policy has marked a significant departure from that of his predecessors. But clearly this latest exchange is different. Understandably, the market reacted negatively to the very mention of military conflict with North Korea.

U.S. stock market indexes tumbled yesterday, August 10, in reaction to the escalating rhetoric between President Donald Trump and North Korean Premier Kim Jong-un. I expect the war on words to continue for a while longer, which will keep investors on edge. The stock market could face further deterioration until President Trump and Premier Kim cool off.

Tonight, we’ll continue to stand pat in the Model Portfolio (though we are placing one stock on Hold) with eight stocks and a cash position near 20%.

The market continues to lean bullish, with warning signs. While the Dow has been hitting all-time highs, the S&P has gone nowhere for two weeks and the Nasdaq has actually lost ground. Investors seem to be deserting “risk-on” assets, leading to underperformance in the Russell 2000 (IWM) and high-growth sectors including Semiconductors (SMH) and Biotechs (XBI).

One of our gold companies today is gaining cash from a mine sale; the other—post merger—is a previous recommendation that is now a hold.

A previous recommendation that is now a hold.

Two of the portfolio stocks each reported strong quarterly earnings beats.

The shares of this pharmaceutical stock is seeing new analyst coverage.

This engineering and consulting firm is eating up its competition.

This gene therapy company has been getting lots of good attention from analysts, with coverage of the shares being initiated at Evercore ISI Group, with an ‘Outperform’ rating.

The shares of this cosmetic company were recently upgraded by JP Morgan to ‘Overweight’.

This fast food giant beat earnings estimates by $0.04 last quarter, and three analysts recently raised their EPS forecasts for the company.

It’s not entirely unusual for a new CEO at a company to change the dividend policy due to having a different idea of how the company should be using its cash flow.

In the past 30 days, seven analysts have raised their earnings forecast for this restaurant company.

Two stocks are moving up and a third stock is moving from Buy to Strong Buy.

This auto parts supplier beat analysts’ estimates by a whopping $1.53 per share last quarter.

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.