Two weeks ago, we pointed out some developing divergences in the broad market, and in the short-term, those have caught up to the big-cap indexes and growth stocks, which have generally fallen off in recent days, including a couple of breakdowns. In the near-term, the outlook is still murky, so we advise stepping carefully, though big picture, we remain bullish and, hence, heavily invested.
In the Model Portfolio, we’ve placed some stocks on hold and, this week, sold one stock as it broke down on huge volume. We’re holding 18% cash now, though should the market and growth stocks firm up, we’ll be looking to put that to work in stronger leaders.
In tonight’s issue, we dive in deeper into all our thoughts on the market and our stocks, as well as look at prior environments after blastoff signals to see what’s normal and what’s not (hint: so far, we’re still in good shape).

CBD is hot, and acquisitions in the cannabis industry seem to occur daily, but the biggest marijuana stocks are cooling, at least for a while.

Long-term, however, I remain very bullish on both the companies and the stocks in the industry and am truly enjoying staying on top of the developments.

The gains so far this year, in both the sector and the portfolio, remain spectacular, but they won’t continue; I guarantee that corrections and volatility will come. And I also guarantee I’ll give you my best ideas on how to deal with them.

In this issue I highlight a company that has been investing in infrastructure assets all over the world. The stock has doubled the return of the S&P 500. And business will only get better.

The market has softened over the past week, and we’ve seen some high-volume selling in former leading stocks, so I’m now pulling back a bit on risk, which is one reason today’s recommendation is a low-risk utility stock.
Technically part of the Safe Income portfolio of Cabot Dividend Investor, this stock pays a healthy 2.6% yield and it has decent upside potential as well.
As for the current portfolio, we still have some stocks hitting new highs, but we’ve also got some showing renewed weakness, so today I have two sell recommendations. Details in the issue.

Current Market Outlook


The lagging action of the broad market finally caught up with the major indexes last Friday, with everything taking a big hit and, more important, small- and mid-cap indexes falling below their 50-day lines. Right now, most of the evidence remains positive, so we remain mostly bullish. But it’s fair to say our antennae are up and the next few days will be important—the intermediate-term trend is basically on the fence (another bad day could turn it down) and many leading stocks have been running for many weeks and are extended to the upside. Bottom line, we’re sticking with our current stance, but be sure to honor your stops and loss limits, take partial profits where available and, on the buy side, be discerning and aim to buy on weakness.
The good news is we’re seeing a decent amount of strong stocks that hit new highs recently and are pulling back normally. This week’s list is full of them, and our Top Pick is iRobot (IRBT), a stock with a solid growth story and a good-looking setup on the chart.

Stock Name	Price	Buy Range	Loss Limit
Forescout (FSCT)	41.92	41.5-43	37-38
Huazhu Group (HTHT)	30.89	38-40	34-35.5
Invitae (NVTA)	32.06	22.5-24.5	19-20
iRobot (IRBT)	103.17	118-122	107-110
ProPetro (PUMP)	23.30	20.5-21.5	18.2-18.9
Shopify (SHOP)	585.00	194-200	178-182
Sleep Number (SNBR)	35.80	45-47	41-42.5
StoneCo (STNE)	27.54	37-39.5	31.5-33
Wheaton Precious Metals (WPM)	34.43	23.5-24.5	21.5-22
Wix.com (WIX)	302.53	116-120	107-110

We’ve seen a bit of turbulence in international emerging markets with speculation about trade talks and the perceived slower growth in China and Europe.

Apparently, institutional investors are underweighting Europe so we go against the grain for our new recommendation. This is a great brand that offers a nice combination of high quality, value price of entry, strong growth in emerging markets and a 7.8% dividend yield.

The market remains in an uptrend, and many of our leading stocks have been hitting new highs, even though the major indexes haven’t—yet. Thus I continue to recommend that you be heavily invested in a diversified portfolio of stocks—growth, value, dividend-paying and more. Someday, it will become appropriate to be more cautious, but that time is not now.
Today’s stock is a young technology stock with great growth prospects as it supplies its customers with the tools needed to secure digital operations of all types and sizes. It’s an aggressive, high-risk investment, but the trend is strongly up.
As for the current portfolio, six of our stocks have hit new highs in recent days, so we’re making great progress. The only changes this week are two downgrades from Buy to Hold. Details inside.

Current Market Outlook


The market’s snapback last week was very encouraging, with the major indexes and most leading stocks leaping back toward (or in some cases, out to) new highs. As we wrote last week, there are a couple of short-term issues to keep an eye on—namely, we saw some non-confirmations, as small- and mid-cap indexes didn’t bounce that much and far fewer stocks hit new highs even as the S&P and Nasdaq did. At this point, that action is more descriptive than predictive; it does raise the odds that the market could throw us another curveball over the next week or two, but it’s not something we’d necessarily trade off of. Big picture, we remain mostly bullish, though for new buying, we still favor entering on weakness.

This week’s list is just about all tech, med tech and biotech, and we’re happy to see some improved setups after the past two to three weeks of action. Our Top Pick is Zendesk (ZEN), which looks like it wants to continue its breakout from a few weeks back.

Stock Name	Price	Buy Range	Loss Limit
Amarin (AMRN)	14.06	18-20	16.5-17.5
Cree, Inc. (CREE)	67.96	54.5-57	49.5-51
Exact Sciences (EXAS)	116.91	88-92	80-82.5
iQIYI (IQ)	0.00	25.5-27.5	22.5-23.5
Paycom Software (PAYC)	0.00	176-183	159-163
Q2 Holdings (QTWO)	80.81	66-69	60.5-62
Ubiquiti Networks (UBNT)	170.11	137-142	125-128
Ulta Beauty (ULTA)	331.95	326-343	290-300
Xilinx (XLNX)	134.50	119-125	108-112
Zendesk (ZEN)	82.19	79-83	72-73.5

For value-focused investors, this year’s prologue has been a welcome change from the turmoil experienced in early 2025.

In just the past few weeks, some of last year’s most ignored or underappreciated laggards have posted outsized gains, with rallies that have made even momentum-driven tech stock traders envious. Even more remarkable is the fact that much of that strength has been concentrated in ultra-defensive areas of the market like consumer staples, utilities and healthcare.

The market rotation continues to be the main story out there this week, though rumblings of a potential strike on Iran, an update from the January FOMC meeting, and a slew of earnings reports and economic data releases have been giving investors plenty to think about.

In terms of the rotation, the equal‑weight S&P 500 ETF (RSP) is up 5.5% so far this year, illustrating that leadership is broadening beyond the narrow group of mega‑cap stocks that drove much of last year’s performance.

Year to date, the S&P 600 SmallCap Index is up 8.3% and the S&P 400 Mid‑Cap Index is up 7.9%. Both are comfortably outperforming the S&P 500, which is up just 0.1%, and the Nasdaq, which is down 2.1%.

Happy Chinese New Year! The year of the horse is upon us.

China is expecting an incredible 9.5 billion trips to be made during the 40-day Lunar New Year travel period. Chinese automakers are also on the move as the country’s numerous brands sold nearly 200,000 vehicles in Britain last year, doubling their market share to almost 10%.

As U.S. investors have shifted from risk-on to risk-off mode in recent months, a clear disparity between the “haves” and the “have-nots” has materialized.

Let’s start with the “have-nots.” Financials have fared the worst so far this year (-4.7%), followed by technology (-3.1%), communication services and consumer discretionary (-2.8% each). The downturn in the two tech-related sectors in particular is a stark departure from recent years, when technology led the charge of the current bull market.

Cyclical stocks are soaring and technology is floundering in the transformed market.

The bull market is turned upside down. For most of the first three years, technology, and particularly AI stocks, soared while most other stocks did very little. Now, previously meandering stocks are killing it while technology sinks.

Strong fourth-quarter earnings are confirming what the market was already doing.

Current estimates based on earnings reported so far are for 13.2% overall S&P earnings growth for the quarter. It’s a solid quarter and the fifth straight quarter of double-digit earnings growth. In terms of sector performance, cyclical companies are killing it, and technology is floundering, just like before earnings.

Like many coffee aficionados, I have something of a love/hate relationship with Starbucks (SBUX). My main gripe is that the company’s food and beverage offerings have always been pricey compared to the fare served in most fast-food restaurants and run-of-the-mill coffee houses.

The outperformance of small caps continues.

Through Tuesday’s close, the S&P 600 is up 10% year to date versus just 1.6% for the S&P 500.

All but three small-cap sectors are outperforming their large-cap counterpart. The strongest small-cap sectors are materials (+20%), energy (+23%), industrials (+17%), and tech (+11.4%).

Let’s talk about the power of staying invested.

Sure, when the market turns south – and I’m not even sure last week’s mini-dip qualifies – it makes sense to pare back on your weakest stocks and put a larger portion of your portfolio in cash. But taking your ball and going home – selling out of all of your stocks when times are tough – is not a winning strategy. Here’s why.

NOTE: We’re sending this a day early as I’m soon to embark on a trip with the kiddos over the next week. I will be working a good amount from the road, though, and will have updates if need be. Also, next week’s issue will be published as scheduled.

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WHAT TO DO NOW: The market remains very mixed, with growth measures still generally pointed sideways to down, while the broad market remains in solid shape. What’s interesting, though, is that we’re seeing more growth stocks kick into gear, along with some huge buying action in a few “cyclical growth” names. Tonight we’re making one move—adding a half-sized stake in Macom Tech (MTSI)—but are keeping our eyes open for a broader character change among growth stocks. Our cash position will be around 53%.

Today could be a big day for cannabis stocks.

The reason: We may get an important update on the rescheduling timeline.

Cannabis investors will be watching closely today to see whether Attorney General Pam Bondi offers a rescheduling update when she appears before the House Judiciary Committee. Upbeat comments could spark a sharp cannabis sector rally. The hearing starts at 10 a.m. EST.

I’m excited to share a couple of enhancements to Cabot Early Opportunities —improvements designed to sharpen our focus and better help you stay on top of the stocks we own.

Analysts at Piper Jaffray recently upgraded the stock of this chicken producer to ‘Overweight’.

One of our stocks reported earnings per share that beat analyst estimates. Revenue came in on target, expenses came in below estimates and operating income came in much higher than expected.

This medical device maker beat earnings estimates by $0.27 last quarter, and fourteen analysts have increased their EPS forecasts for the company in the past 30 days.

Three of our stocks reported fourth-quarter 2017 results this morning.

We sold half our WYNN shares in August for a 36% gain, and have an unrealized profit of 76% on our remaining position. I’m going to sell another half of our shares today, to protect some of our remaining profit.

This international wellness company beat analysts’ estimates by $0.14 last quarter.

Lots of uncertainty around marijuana, but the profit potential looks very attractive. Investors unsure of individual stocks may want to take a look at this ETF.

This auto seat supplier just formed a joint venture with Boeing to make airplane seats.

It remains a strong bull market, but below the surface, there are many crosscurrents, as some stocks run into trouble and others pile on big gains.

Updates on several of our stocks and one rating change.

In the past 30 days, seven analysts have increased their earnings forecasts for this drug maker.

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.