Current Market Outlook


Last week featured a lot of dramatic news items (including negative oil prices!), but it ended up being a quiet week in the major indexes, which we take as constructive—the action allowed some stocks to settle down a bit, which is often a sign of accumulation. Thus, we’re optimistic, but the key from here is to take things day by day and to stay in gear with the market’s evidence. Right now, with the intermediate-term trend still up and many stocks acting well, you should be putting some money to work, and then see what comes—further upside (especially if we see many bullish earnings gaps) would be a sign to do some follow-on buying, while a couple of sharp, big-volume selloffs in the market would tell you to hold off. As we wrote above, we’re optimistic the path of least resistance is up, but we’ll stay flexible and take it as it comes.

This week’s list again has plenty of good-looking names to choose from. Our Top Pick is Pinduoduo (PDD), which has turned powerful after a five-month rest. You can start a position here or (preferably) on dips of a couple of points.

Stock Name	Price	Buy Range	Loss Limit
Alnylam Pharmaceuticals (ALNY)	143.58	136-141	120-123
Boston Beer Company (SAM)	459.16	435-450	390-400
DocuSign (DOCU)	107.98	101-105	88-90
Exelixis (EXEL)	27.35	25-26.5	22-23
Freshpet (FRPT)	107.99	74-78	65.5-67.5
MarketAxess (MKTX)	439.96	420-440	375-385
Netflix, Inc. (NFLX)	423.92	410-426	370-380
PayPal (PYPL)	147.00	117-122	107-109
Pinduoduo (PDD)	87.53	48-51.5	42-44
Snap Inc. (SNAP)	16.68	15.5-17	13.5-14

The market’s rebound continues and our stocks, as a whole, continue to perform well. Someday, however, a correction will begin and it will pay to be alert—and to react—when it does.

In the meantime, I will keep recommending the best stocks, a system that has worked quite well in recent weeks. This week, we continue to diversify with a recommendation of a marijuana stock, a group that went through a two-plus year correction and in the process got relatively cheap.



As for the rest of the portfolio, it’s acting well and thus the only change today is a downgrade of one stock from buy to hold.



Full details in the issue.

Our Cabot Tides buy signal earlier this week has prompted us to put some cash back to work; we now own seven stocks, though we still have a good-sized cash position of around 46%. As always, we’ll just take it as it comes, but so far leading growth stocks and the major indexes remain in good shape.

In tonight’s issue, we review a little about how we run our ship, as well as dig deeper into Cabot’s Aggression Index, which can also provide some clues for the overall market. And, of course, we dive into all of our stocks and some fresh ideas should the buying pressures grow.

Despite the self-induced recession, the stay-at-home economy is booming thanks to companies that are letting employees work from home—and even after things go back to normal, it’s likely some of this new workplace flexibility will be here to stay.

Current Market Outlook


While the day to day volatility remains extreme, the market’s intermediate-term trend has turned up (according to our measures), which argues for a more constructive stance toward stocks. Of course, that doesn’t mean you should dive in headfirst—there remain plenty of headwinds, including the fact that most stocks are still below their 50-day and 200-day moving averages (i.e., plenty of potential selling to chew through on the upside). But there’s no question the evidence has improved, so it’s a good idea to slowly put money to work, and then use the market for feedback; If you develop some solid profits, you can become more aggressive, but if the uptrend decisively cracks (would take a 6% to 7% drop from here), you want to hold off further buying and honor your stops.

This week’s list continues the trend we’ve seen of many high-potential stocks spiking back toward their old highs. Our Top Pick is Okta (OKTA), which has rejoined the leadership ranks after nine-months of correcting and consolidating.

Stock Name	Price	Buy Range	Loss Limit
ACADIA Pharmaceuticals (ACAD)	47.84	48-50.5	42-44
Advanced Micro Devices (AMD)	82.24	53-56	47-49
ASML Holding (ASML)	350.01	285-295	257-263
CrowdStrike (CRWD)	105.02	65-67.5	56-58
Franco-Nevada (FNV)	125.51	122-126	109-111
Immunomedics (IMMU)	34.23	20.5-22	16.5-17.5
Okta, Inc. (OKTA)	148.41	146-152	127-130
Sea Limited (SE)	132.86	51-53	46-47
Shopify (SHOP)	585.00	575-615	510-525
Tradeweb Markets (TW)	51.44	50-52	45-46

The good news is that four weeks of upside action has brought a new buy signal from Cabot’s intermediate-term market timing indicator. But this doesn’t mean you can jump in with both feet yet; there’s still reason for caution.

One way Cabot Stock of the Week exercises caution is by diversifying widely, not only among industries but also among investment strategies. Today’s recommendation, a big undervalued robotics company in Japan, is an excellent example.



As for the rest of the portfolio, it’s acting well and thus the only change today is a downgrade of one stock—which has got a bit high—from buy to hold.



Full details in the issue.

Finally, the coronavirus news is improving, and so is the market. We’re now up about 12% on the Dow since our issue last month. Our Adviser Sentiment Barometer is mixed; still mostly bearish, but our contributors—as well as our analysts here at Cabot Wealth feel we are near a bottom on the markets. That, of course, is dependent upon how well we do when our economy begins to reopen.

So far, around 17 million unemployment claims have been filed, and it will take awhile for the unemployment number to recover. But, as you know, the markets generally move ahead of the economy, gathering the good news in first, so we are feeling optimistic.



As you know, I’ve been adding a lot of dividend stocks to my newsletter in the past month or so, so that you could, at least, enjoy some cash flow while we await the recovery. I’m beginning to go back to growth, so you’ll see more of those recommendations in the next few weeks.



And our Spotlight Stock this month, certainly fits the growth category.



Full details in the Issue.

The market rebound from its lows has been impressive as the unprecedented amount of stimulus injected by the Fed and Congress has overwhelmed any forward-looking concerns about the real economy.

The key now is to build, day by day, a more normal trading pattern. Cabot Global Stocks Explorer positions have kept pace with the market with outlier Virgin Galactic (SPCE) coming back 75% in two weeks. Our emerging markets (EEM) timer needs a bit more time to come out of its negative position. Today’s new recommendation is a high-quality, debt-free robot maker that is trading at close to a 10-year low.

Two of our stocks—Reynolds American (RAI) and U.S. Bancorp (USB)—reported earnings this morning (details are below). So far, earnings season is off to a good start, with the big banks and Netflix (NFLX) beating estimates in recent days.

After reaching new highs this summer, the S&P 500 index has receded to price support around 2,120. That’s frustrating for investors because most good stocks will move somewhat in tandem with the S&P, so your stock portfolios have probably been a disappointment in recent weeks.

I move one stock to Hold this week. And I may make a move or two in the coming days depending on intra-day trading action.

Five Cabot Benjamin Graham Value Investor companies reported quarterly financial results or other noteworthy news. This update also includes three questions from subscribers along with my answers.

The Emerging Markets Timer has shifted to a warning signal, so we are turning more cautious and raising some cash. The markets have taken some of our stocks lower over the past few days, but the portfolio is in pretty good shape overall. Tonight we’re selling MercadoLibre (MELI) and Silicon Motion (SIMO), and putting Baozun (BZUN) and Line Corporation (LN) on Hold.

Yesterday’s sharp selloff turned Cabot’s intermediate-term market timing indicators negative, so it’s time to get a little more conservative.

There are several news items and portfolio highlights in today’s update.

The Dow Jones Industrial Average was unchanged during the past week. The bullish rise in the price of oil to $50 a barrel was offset by worries about the stability of Deutsche Bank in Germany.

In today’s Update, we’ll sell the BulletShares 2016 High Yield Corporate Bond ETF (BSJG), which is maturing at the end of the year, and replace it with the BulletShares 2020 High Yield Corporate Bond ETF (BSJK), which yields significantly more.

Stick with a lean-bullish stance as we wait for the market to show its hand. Our Cabot Trend Lines and Two-Second Indicator are still bullish, but our Cabot Tides remain effectively neutral, and until that changes, stocks and indexes will see lots of choppy action. In the Model Portfolio, we’re sticking with our current 30% in cash and our crop of seven stocks.

I’m not advising any actions before the market opens today. However, I am watching all of our stocks closely for any signs that a significant decline could reduce our gains in the short-term.

Our second recommendation is some very nice-profit-taking on a previous pick.

As reported by Zacks, the EPS estimates on our first pick today “have surged 266.7% to 11 cents.”

The three largest sectors for this Japanese fund are: Industrials (26.4% of assets); Consumer Cyclicals (19.38%); and Technology (16.08%).

Our portfolio includes a few stocks that we took partial gains on a while back and which haven’t been able to get going in the right direction since. And one that never got going in the first place.

This electronics manufacturer beat Wall Street’s earnings estimates by $0.09 last quarter, and five analysts have raised their EPS forecasts in the past 30 days.

This building products company’s EPS forecasts have just been increased by one analyst, and consensus estimates expect the company to grow by an annual rate of 15.76% over the next five years.

Wall Street expects this pharma to grow by 19.9% annually over the next five years.

Analysts for this retailer are increasing quarterly and yearly earnings guidance.

This defense contractor has a bright future with hefty new military contracts, but shares are very sold-off.

Downgrading to a sell.

This sports network company is trading at bargain levels, yet is expected to grow more than 10% this year.

We all saw U.S. stock markets exhibit exuberance on December 3 and then fear on December 4. I anticipate another strong upward move during the remainder of this week.

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.