The shift from Wednesday’s pullback to today’s nice market bounce is just par for the course as investors scramble to figure out the fallout from alarming headlines and conflicting predictions. It’s not an easy market to navigate, and the portfolio is dealing with it by holding a heavy (50%) cash position and cutting back on most buying. But we’re still finding attractive stocks for our watch list, and will be ready when we finally get a green light from the Cabot Emerging Markets Timer.

The economy remains strong, prompting the Federal Reserve to raise interest rates another 25 basis points, and signaling that two more rate increases are in the cards for the rest of this year. The unemployment rate for June did rise from 3.8% to 4%. But the housing market remains healthy and estimated second quarter earnings growth for the companies in the S&P 500 Index is 20%. If that number is correct, it will be the second best earnings growth that we’ve seen since the third quarter of 2010.

Eternal vigilance is the price of investment success. For us, that means continually adapting our portfolio so that it is best positioned to benefit from the stocks that can do well in today’s market.

Current Market Outlook


It came on low volume and Independence Day made it just four days, but last week’s trading action was encouraging, with the major indexes generally holding key support early in the week and then bouncing nicely into the weekend. By our measures, the intermediate-term trend is still tilted up, and while there are fewer stocks hitting new highs than there were a few weeks back, there remain many stocks in good shape. With the improved evidence, we’re nudging our Market Monitor up a notch to 7; like we just wrote, last week was encouraging. But we also want to see how the indexes and leading stocks handle themselves now that big investors are back at their desks and earnings season gets underway.

This week’s list is again heavy on growth-oriented stocks, including a couple of newer names we haven’t seen before. Our Top Pick is Vertex Pharmaceuticals (VRTX), which has surged toward the top of an 11-month consolidation. We’re OK starting small and adding more if shares advance.

Stock Name	Price	Buy Range	Loss Limit
AeroVironment (AVAV)	80.48	68-71	61-63
Carrizo Oil & Gas (CRZO)	24.03	28-30	25-26
Dexcom (DXCM)	421.36	96-100	87-89
iRhythm Technologies (IRTC)	51.15	84-87	76-78
Lululemon Athletica (LULU)	304.69	122-128	112-115
Novocure (NVCR)	0.00	31.5-33	28.5-29.5
Shake Shack (SHAK)	92.08	62-65	55-57
Twitter (TWTR)	40.37	42-45	37.5-39.5
Vertex Pharmaceuticals (VRTX)	230.36	169-175	158-161
Yext Inc. (YEXT)	21.32	18.5-19.5	17-17.5

With this month’s new addition, I decided to go in a different direction then we have with previous recommendations. Instead of featuring another rapid-growth medical device or software stock, I’ve selected a consumer defensive stock in a very specialized industry and with a more modest growth profile. It’s the perfect summertime stock for a period in which many growth stocks are acting a little schizophrenic—especially for those investors who like getting out of the house for a bite to eat and a good beer or glass of wine.

This stock and its peers are experiencing a game-changing situation within its industry. The stock therefore deserves a second look by growth investors.

Traders will be happy to see this stock joining the Buy Low Opportunities Portfolio for the third time in less than a year. Let’s see if we can accomplish a trifecta!

One of the minor predictable patterns that the stock market has developed over the years involves the days before and after holidays (like the Fourth of July). Basically, stocks do a little bit better on those days, but the pattern is neither big enough nor dependable enough to make money on. Still it’s worth keeping in mind as you watch the action of stocks this week.

When the market picture gets confusing, as it often does, it pays to have some reliable indicators to depend on—rather than the guy on the evening news. So today, after a couple of weeks of market correction that have done serious damage to some leading stocks and led many pundits to ask whether we’ve seen the market top, we turn to our indicators and ask whether the bull market is truly over, and here’s what they say...

Current Market Outlook


The selling pressure that appeared two weeks ago carried through to last week, with many leading stocks breaking down and others falling back into consolidations. That said, it’s not the end of the world—many major indexes are now testing their 50-day lines, and a bunch of stocks are in the same boat. There’s no question that the evidence has worsened lately, which is why our Market Monitor is back down to a reading of 6 (out of 10), but we’re most interested in what happens from here, which will probably go a long way toward determining the market’s next intermediate-term move. All told, you should still hold your strong, profitable stocks, but we also think it’s best to cool your heels a bit, keeping new buys small and holding some cash as we wait to see the market show its hand.

In the meantime, we’re using this brief period of market weakness to identify the stocks unaffected by the selling, as those will likely do the best when the market resumes its major advance. This week’s list has plenty to choose from, and our Top Pick is Wayfair (W), which is unusually strong—keep positions small and try to buy on dips.

Stock Name	Price	Buy Range	Loss Limit
Five Below (FIVE)	134.58	93-97	83-85
Ligand Pharmaceuticals (LGND)	267.14	202-211	185-188
Netflix, Inc. (NFLX)	423.92	385-400	345-355
Oasis Petroleum (OAS)	12.57	12.1-12.9	11-11.3
Supernus Pharmaceuticals (SUPN)	52.50	54-57	49-51
Teladoc, Inc. (TDOC)	127.95	56-60	49-51
Ultragenyx Pharmaceutical Inc. (RARE)	87.63	74-78	66-68
Wayfair (W)	167.03	112-117	100-104
WellCare Health Plans, Inc. (WCG)	271.83	238-245	220-225
WPX Energy (WPX)	0.00	17.4-18.5	16-16.7

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.

This optical company was recently added to the Russell 2000 Microcap/Small Cap Index, which should invite new institutional interest in the shares.

Crista comments on Goldman Sachs’ and Bank of America’s strong second quarter earnings beats this morning, plus provides an earnings report calendar for our stocks through July.

Along with other top management changes, this biotech just announced a new CFO today.

Special updates on two of our stocks that are good Buys here.

Analysts are forecasting double-digit growth for this new Top Pick.

This uranium company has several catalysts in store, and analysts are projecting double-digit growth this year.

Today we have five buy ideas including two ratings changes.

This pharmaceutical company is forecast to continue growing at double-digit rates over the next five years.

This ETF focuses on medium-sized growth companies in the cyber security space—a fast-growing arena.

The stronger global economies are allowing central banks to abandon economic stimulus efforts and attempt to return to more normal interest rates. The turnaround overseas has caused the U.S. dollar to fall, which will likely continue during the next couple of years.

We have a few portfolio stocks that warrant attention this week, amid an ongoing sector rotation. Money is flowing out of overvalued tech stocks into quite a variety of undervalued industries.

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.