Issues
The market remains in good shape, generally shrugging off a stream of bad news by marching higher. Pullbacks are certainly possible, but most investors are positioned cautiously, which is another arrow in the bulls’ quiver when looking down the road.
In tonight’s issue, we’re putting another chunk of money to work by adding two half-sized positions (one in a stock we already own). That will leave us with 25% in cash.
Elsewhere in the issue, we write about a couple of additional positive longer-term signs for the market (one based on money flows, one based on the market itself), look at some new ideas and review all of our Model Portfolio holdings.
In tonight’s issue, we’re putting another chunk of money to work by adding two half-sized positions (one in a stock we already own). That will leave us with 25% in cash.
Elsewhere in the issue, we write about a couple of additional positive longer-term signs for the market (one based on money flows, one based on the market itself), look at some new ideas and review all of our Model Portfolio holdings.
The market contributed to the bullish mien of the show, with the Dow Jones Industrial Average kicking in an 8.5% gain since our last issue. The economy also did its part; rates are stable right now, and the job market continues to improve. There is currently, on average, less than one potential employee for every job opening in our country.
Our contributors continue to be bullish, although with a cautious stance, as you’ll see reflected in our Advisor Sentiment Barometer and Market Views.
Our contributors continue to be bullish, although with a cautious stance, as you’ll see reflected in our Advisor Sentiment Barometer and Market Views.
Market trends remain quite positive, and I continue to recommend that you work to get more invested. According to our market timing indicators, the odds are still very good that months from now, the market will be higher.
With today’s recommendation, I jump back on the growth track, with a stock that we sold for a 61% profit last year. The company has one of Mike Cintolo’s favorite growth stories, and if you owned it then, maybe you’d like to own it again, too.
As for the current portfolio, overall, we’re making great progress as the bull market pulls our stocks along; four are hitting new highs! But not all stocks are participating, and now it’s time to sell one. Details inside.
With today’s recommendation, I jump back on the growth track, with a stock that we sold for a 61% profit last year. The company has one of Mike Cintolo’s favorite growth stories, and if you owned it then, maybe you’d like to own it again, too.
As for the current portfolio, overall, we’re making great progress as the bull market pulls our stocks along; four are hitting new highs! But not all stocks are participating, and now it’s time to sell one. Details inside.
Current Market OutlookMost major indexes have finally taken a bit of a breather during the past few trading days, with the 200-day moving average providing a bit of logical resistance. So far, the damage has been very limited and, in fact, many leading growth stocks actually hit new highs today. Without predicting any specific path, the big prior run, overhead resistance and still-iffy longer-term trend probably means more choppiness and potholes are on the way, especially as earnings season continues. But the overall evidence (which, by the way, includes a lack of meaningful pullbacks so far) continues to impress. We still think the next big move from here is up, but be sure to pick your spots (and your stocks) on the buy side, and practice patience with your strongest performers, giving them a chance to continue advancing.
This week’s list sports a bunch of recent earnings winners from a variety of industries. Our Top Pick is Array Biopharma (ARRY), which has shown fantastic accumulation pre- and post-earnings as it lifted to all-time highs.
| Stock Name | Price | ||
|---|---|---|---|
| Array Biopharma (ARRY) | 46.35 | ||
| Chipotle Mexican Grill (CMG) | 773.32 | ||
| Columbia Sportswear (COLM) | 102.15 | ||
| Glaukos Corp. (GKOS) | 67.84 | ||
| Kirkland Lake Gold (KL) | 51.30 | ||
| LPL Financial Holdings (LPLA) | 85.22 | ||
| Palo Alto Networks (PANW) | 236.92 | ||
| Paycom Software (PAYC) | 0.00 | ||
| Spirit AeroSystems (SPR) | 92.54 | ||
| Zendesk (ZEN) | 82.19 |
Emerging market stocks remain in an uptrend, though like most stocks around the globe, a little resting wouldn’t be uncalled for after the recent run-up. Even so, with our Emerging Markets Timer still green, we’re looking to add exposure at opportune times.
Tonight, I see two opportunities—one from the less-followed area of Southeast Asia, and one from China, as one of our watch list stocks is being upgraded to buy. Many of our recommendations are making solid progress, and I’m optimistic both of these can be leaders going forward.
Tonight, I see two opportunities—one from the less-followed area of Southeast Asia, and one from China, as one of our watch list stocks is being upgraded to buy. Many of our recommendations are making solid progress, and I’m optimistic both of these can be leaders going forward.
I’m happy to say that the market is looking better, with the Dow Jones Industrial Average seeing a 6.8% improvement since last issue. I think investors were relieved that the government shutdown was over (although, we don’t know if that will last!). As well, unemployment (not counting the shutdown consequences) is still steady, consumer confidence is up, and housing prices look pretty stable right now. All of that positive news is reflected in our contributors’ market sentiment, as you’ll see in our Market Views section.
Market trends remain quite positive, and I continue to recommend that you work to get more invested. According to our market timing indicators, the odds are still very good that months from now, the market will be higher.
Today’s recommendation is a well-known medical stock that’s temporarily a bargain, chosen for both diversification and the fact that the broad market, which has surged higher since Christmas, is due for a real correction.
Today’s recommendation is a well-known medical stock that’s temporarily a bargain, chosen for both diversification and the fact that the broad market, which has surged higher since Christmas, is due for a real correction.
Today I’m highlighting three different types of trading opportunities: buying stocks in the days leading up to earnings reports, buying stocks when they fall a silly amount on neutral or good news, and putting great stocks on watch as we await pullbacks. There are many changes in Buy recommendations today, reflecting both dramatic changes in year-to-date price action and significant earnings revisions as Wall Street contemplates final 2018 numbers and solidifies their 2019 earnings projections. I’m not trying to be fickle! I’m just trying to stay on top of the facts so that you can have a clear idea of where tomorrow’s profitable opportunities can be found.
Current Market OutlookIt’s been six weeks since the market bottomed, and the evidence since then has steadily improved—whether it was the blast off from the lows (2-to-1 Blastoff Indicator), the lack of any sustained selling since, the amazing upside breadth or the increasing number of setups and breakouts among growth stocks, it’s all been going the bulls’ way. Of course, now that the market has basically marched ahead for six weeks, things could easily get trickier; even some intermediate-term measures (84% of NYSE stocks above their 50-day lines) are stretched. That’s no reason to worry (longer-term, such power is probably a good sign), but we’d be looking to buy mostly on dips, though we’re still interested in the occasional earnings breakout, too. And, as things head higher, don’t forget to book some partial profits along the way. We’re bumping up our Market Monitor another notch tonight.
This week’s list is another diverse set of stocks that are acting well. Our Top Pick is Entegris (ENTG), where an upcoming merger (and a uptick in the chip group) has investors piling in.
| Stock Name | Price | ||
|---|---|---|---|
| Boeing (BA) | 432.22 | ||
| Cree, Inc. (CREE) | 67.96 | ||
| CyberArk (CYBR) | 111.74 | ||
| Elastic (ESTC) | 86.17 | ||
| Entegris (ENTG) | 48.08 | ||
| ServiceNow (NOW) | 341.86 | ||
| Smartsheet (SMAR) | 44.12 | ||
| Spirit Airlines (SAVE) | 57.03 | ||
| Woodward (WWD) | 111.91 | ||
| Zscaler (ZS) | 126.22 |
Updates
While flashier, more star-studded teams like Lionel Messi’s Argentina, Kylian Mbappe’s France and Erling Haaland’s Norway garnered most of the headlines at the just-completed World Cup, Spain was the best team. There was nothing flashy about Spain: no mega-stars, not a ton of goals, no relentless attack. Instead, they dominated the tournament with precision passing, immaculate ball control and near-impenetrable (just one goal allowed all tournament!) defense.
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 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.
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.
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.
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.
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 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.
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.
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.
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.
Alerts
This tech company issued a great quarterly earnings report and the stock price has edged up. Watch for brief dips before buying.
Here is a special update on two of our stocks.
Our first idea is a semiconductor company that beat analysts’ earnings by $0.15 last quarter.
. Our second recommendation is profit-taking on a previous recommendation.
We’re moving this stock to Hold today, after Credit Suisse downgraded the stock to neutral.
This business services company beat earnings estimates by $0.17 last quarter. The shares just crossed over their 50-day moving average in August, a bullish indicator.
This cosmetics company beat analysts’ estimates by $0.08 last quarter and 22 analysts have increased the company’s earnings forecasts for this year.
This mobile restaurant platform is catching Wall Street’s attention (upgrades from Morgan Stanly and Cowen) and analysts expect double-digit growth for the next five years.
This stock fund is changing its strategy to include stocks with higher earnings yields.
This pharmacy benefit management company beat analysts’ estimates by $0.03 last quarter. Three analysts have increased their EPS estimates for the company in the last 30 days.
In addition to Goldman’s upgrade of this auto manufacturer’s stock, these firms also raised their ratings: Barclays, to ‘Overweight’; Bank of America, to ‘Neutral’ and Kepler Cheuvreux, to ‘Buy’.
As a result of the selloff in financial stocks this week, we’re selling one stock and moving another to Hold. I also include a special update on another holding that issued a hurricane-related business update on Wednesday morning.
Portfolios
Strategy
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.