After a fairly quiet March, emerging markets came to life this week after the revelation of unexpectedly strong manufacturing growth in China, progress on trade talks and lower interest rates—which always help emerging markets.

This week we have a new recommendation that helps power emerging market consumer spending, a key driver as these markets transition from exports to consumer spending to fuel their growth.

Here in Tennessee, the Bradford pears, forsythia, and daffodils are in bloom. And so is the market! We had a good market month, with the Dow Jones Industrial Average gaining more than 500 points since our last issue.

The economy continues to be strong, with unemployment low and housing still favorable. And sentiment, as you’ll see in our Market Views, remains bullish overall.

Various portfolio companies are in the midst of changes and volatility related to a spin-off, a name change, the Boeing Max 737 problem and the ongoing effects of Midwest flooding. In addition, U.S. stock markets decided that they’re ready to rise again, so I itemized several opportunities in this issue ranging from blue chip stocks to a microcap stock.

I expect 2019 to continue being a year that offers great opportunities for stock traders. While my investment style of identifying undervalued growth stocks is not conducive to day trading, investors will likely find lots of opportunities to achieve capital gains of 10% or more over several-month periods.

The market’s weakness didn’t last long; the indexes snapped quickly back, though breadth is not quite as good as previously. Still, the market strength restores my confidence that we’ll see higher highs in the months ahead, and I recommend that you invest accordingly.
For today’s recommendation we swing back to the aggressive side. Remember those promises of DNA-based personalized medical treatments from a decade ago? We’re getting closer and today’s recommendation is a leading force in the field.

While it may seem that all the stocks in the Dow Jones Industrial Average may move together, there are always those laggards that can’t catch up. This creates opportunity for the turnaround investor.

In this issue, we provide our thoughts on the laggards, highlighting those with promising appeal as well as some that might best be left alone for now.

Current Market Outlook


The major indexes have scored a couple of solid gains, though we’re seeing plenty of crosscurrents underneath the surface; this could be the start of a rotation out of growth, but it may just be normal action that’s often seen around quarter-end (as hedge funds, most of which get paid quarterly, book profits and reposition themselves). Just looking at the evidence, the push higher has kept the intermediate-term trend pointed up, and while some leaders have hit potholes, most remain in uptrends and have avoided abnormal action. Overall, then, we remain mostly bullish, though we’ll keep our Market Monitor at a level 7 for a bit longer to see if this recent push (a) continues and (b) is led by leading, Top Ten-style stocks.

This week’s list has many familiar names from earlier this year—a good sign, in our view, that leading stocks are continuing their uptrends. Our Top Pick is Ionis Pharmaceuticals (IONS), a unique drug firm with a powerful chart. Try to buy on dips.

Stock Name	Price	Buy Range	Loss Limit
Armstrong World (AWI)	88.01	77-79	70.5-72
Array Biopharma (ARRY)	46.35	23-24.5	20.5-21.5
Carvana (CVNA)	82.90	56-59	48-50
Ionis Pharmaceuticals (IONS)	73.34	77-80	69-71.5
Paylocity (PCTY)	97.34	87-90	79-81
ServiceNow (NOW)	341.86	240-248	220-223
Survey Monkey (SVMK)	19.97	17-18	15.3-16
TAL Education (TAL)	50.49	34-36.5	31.5-32.5
TransDigm (TDG)	599.41	443-458	415-425
Universal Display (OLED)	187.54	150-155	134-137

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.

The market rolls sideways amidst a slew of conflicting forces.

The S&P 500 has bounced around and is at the same level it was in the middle of May. The primary culprit is technology. That sector has been in a funk. The S&P 500 is hard-pressed to generate any lasting traction while this massive sector, accounting for over 40% of the index, flounders.

The market has gone sideways since May. It seems to be deciding what to do.

It’s encouraging that the resumption of hostilities with Iran has not sent the market lower. It’s also positive that oil prices aren’t rising back to the $100 level earlier in the war, although prices have risen. It’s also another earnings season and analysts expect a big one.

With war being one of the most dominant themes of the last four years, it stands to reason that investors should position their portfolios to account for this conspicuous (and unwelcome) trend.

And lest one be tempted to think that the warfare theme will diminish anytime soon, last week’s article by NPR deflates that illusion: It revealed that global military conflicts are at their highest level since WWII.

Price targets are standard practice on Wall Street. But sometimes, they can act as an artificial ceiling.

For example, say Truist sets a price target on an up-and-coming growth stock that’s 25% higher than its current share price. For a growth stock, a 25% return isn’t much. But then again, the stock could be a total flop, which is the natural boom-or-bust tradeoff growth investors must endure in trading off increased risk for massive upside. So, a price target on a growth stock seems almost like an unnecessary cap on a stock that has the potential to go through the roof.

WHAT TO DO NOW: Continue to trim your sails. In the Model Portfolio, we’ve been getting closer and closer to shore as growth funds and indexes are under pressure and AI stocks cascade lower. Tonight we’re going to further trim Marvell (MRVL) given its ugly action, selling a third of what we have left. That will leave the portfolio with a big 58% cash position. We could put some of that to work if growth names find support, but we want to see key growth measures firm up before buying.

After a brief pause last week, small caps are once again leading the pack.

Through Wednesday’s close, the S&P 600 Small Cap Index is up roughly 21% year to date, compared to gains of about 15% for the S&P 400 MidCap Index, 17% for the Nasdaq and 11% for the S&P 500.

Its earnings season again! That’s a good thing. Earnings just might save the day in an otherwise confusing and uncertain market.

The market is causing whiplash. The Iran peace deal changed things. Stocks held back by high oil prices, and the resulting higher inflation and interest rates, reignited as oil prices came back down after the peace deal. But hostilities with Iran have resumed.

The peace deal may be on hold again. But stocks are hanging in there so far.

The ceasefire with Iran is over and hostilities have resumed. That sounds like a bigger bummer than it’s been in the market so far. Falling oil prices enabled previously beleaguered stocks to soar higher again as the prognosis for inflation and interest rates simultaneously improved. But that rally is over if oil prices spike higher again.

It’s no surprise that summer often brings lower market volatility levels as Wall Street heads to the Hamptons and participation rates diminish.

Indeed, what we’re seeing right now has all the classic symptoms of a low-participation environment, with investor sentiment being remarkably muted. This can be seen across a number of sentiment indicators for several different markets, most of which are flashing decisively “neutral” signals.

The divide between value and growth stocks is widening, as the Nasdaq is now more than 5% off its highs after peaking in early June while the Vanguard Value Index ETF (VTV) is hovering near its late-June apex and is up 3% in the last month.

That can flip in an instant, of course, as we saw in April and May. But the bottom line is that value stocks have risen 15% year to date, compared to an 11% gain in the Nasdaq and a 9.5% boost in the S&P 500.

After a very strong run from the March lows, the market appears to be going through an uncomfortable but healthy rotation. Many of the biggest winners from the AI and semiconductor trade have come under pressure, while value stocks, equal-weight indexes and other areas that had lagged earlier in the year have held up much better.

Markets are facing more inflation as the Iran mess gets messier. Concerns over high AI capital spending are a cloud over a resilient market. On the bright side for our portfolio, however, International Business Machines (IBM) shares were up 7.4% this week following last week’s 8.9% gain. Sea Limited (SE) shares leapt 9.6% this week and are up about 20% over the past month. MercadoLibre (MELI) shares are up 11.6% over the last two weeks.

Needham just initiated coverage of this big data company’s shares with a ‘Buy’ rating. The company is expected to grow at more than 42% per year over the next five years.

Alexion Pharmaceuticals (ALXN) receives drug approval, Ameriprise (AMP) and XL Group (XL) report third-quarter results, and ratings changes on two of our stocks.

This consulting firm beat analysts’ estimates by $0.05 in the past quarter and Wall Street is expecting double-digit growth for the company over the next five years.

Five analysts have raised their EPS estimates for this inbound marketing company in the past 30 days. And Zacks has rated it a ‘Strong Buy’, based on EPS growth, in the near- and long-term.

This supplier to the construction industry beat Wall Street’s earnings forecasts by $0.06 per share last quarter. Analysts are expecting 40%+ growth from the company this year.

One of our stocks reported third-quarter results that met Wall Street’s estimates, two stocks move from Buy to Hold, and there’s new price action on another.

This mega-bank beat analysts’ earnings projections by $0.03 last quarter, leading Wall Street to beat its drums. In the past 30 days, 21 analysts have increased their 2017 forecasts for the company and 13 have boosted their earnings outlook for 2018.

Two of our stocks reported third-quarter earnings beats; another reported third-quarter earnings in line with estimates.

This once out-of-favor designer brand is now being touted by Wall Street. The shares have received lots of analyst attention lately including: upgraded by Canaccord Genuity to ‘Buy’, initiated at Barclays to ‘Equal-Weight’, and upgraded by Oppenheimer to ‘Outperform’.

New FDA approvals are giving this stock some momentum.

Two financial stocks reported earnings beats; sell one and buy the other.

This entertainment company beat analysts’ estimates by $0.12 last quarter, and Wall Street is forecasting growth north of 70% annually over the next five years for the company.

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 Momentum 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 Momentum Trader features.