Last week I mentioned that two of our trend-following indicators had turned positive (the Cabot Emerging Markets Timer and the Cabot Tides), and now we can add one more indicator, the Blastoff Signal—a rare but powerful signal that occurs when the NYSE daily advance-decline line averages twice as many advancers as decliners over a 10-day span. As a result, I continue to advise you to get more heavily and aggressively invested. Months from now, the market will be higher.

Current Market Outlook


We’ve now seen four constructive weeks in a row for the overall market, not just because the major indexes are rallying, but also due to the amazing breadth during the advance (a good longer-term sign and indicative of a vacuum of selling pressure) and the action of individual stocks, a ton of which are setting up good-looking launching pads. That said, it’s not all peaches and cream—the intermediate-term trend is still on the fence (could turn up this week, but hasn’t quite yet), most indexes and stocks are below longer-term moving averages and, after four good weeks, some shakeouts and potholes (possibly on earnings) could emerge. Overall, we’re optimistic and are bumping up our Market Monitor to a level 6, but it’s best to step (not plunge) into stocks and keep looking for lower-risk entry points.

This week’s list contains another batch of great stories, with a variety of strong charts (some coming off lows, others at new highs, others setting up). Our Top Pick is Coupa Software (COUP), which is in a strong group and has seen superb buying volume in recent days.

Stock Name	Price	Buy Range	Loss Limit
Alarm.com (ALRM)	71.33	57-59	51.5-53
Bilibili (BILI)	28.71	15.5-17	13.5-14.5
Coupa Software (COUP)	262.20	73-77	64-67.5
Cronos Group (CRON)	17.62	13-14.5	10-11
HubSpot (HUBS)	582.89	148-153	135-138
Lending Tree (TREE)	411.51	275-285	253-259
LPL Financial Holdings (LPLA)	85.22	67.5-70	62-64
Novocure (NVCR)	0.00	43-46	38-39.5
Pinduoduo (PDD)	87.53	23.5-25.5	21-22
Veeva Systems (VEEV)	180.23	103-107	93-95

The rally off the climactic Christmas Eve low has been very impressive, triggering our 2-to-1 Blastoff Indicator that prompted us to put some money back to work last week. Since then, the action has been encouraging, and our Cabot Tides are close to a new Buy signal. If it comes, we’ll put more of our cash into potential leading names.

Change in weather and change in markets seem to be the norm today. We certainly had an extreme case of market volatility last year, with the Dow Jones Industrial Average ending up with a loss of 7.36%, the S&P 500 declined by 7.6% and the Nasdaq dropped by 5.57%.

The good news today is that both our intermediate-term market timing tool, Cabot Tides, and our emerging markets timing tool, Cabot Emerging Markets Timer, have both flashed buy signals, telling us that we should work to get more heavily invested, by buying attractive stocks at sensible entry points.

Current Market Outlook


Stocks had another great week, with the major indexes posting solid gains, many potential leaders approaching new highs and market breadth being so positive that it flashed a rare “blastoff” green light. Thus, our confidence is growing that the worst has passed—though that doesn’t mean the market doesn’t face many weeks of bottom building, either. Long story short, the evidence has improved, though it’s worth remembering that the intermediate-term trend of the indexes and most stocks remains down. All in all, we’re OK extending your line a bit, doing some new buying in high-potential stocks, but we’re also still keeping a good chunk of cash on the sideline and waiting for more strength to develop (maybe after a retrenchment) before turning bullish. Our Market Monitor moves to a level 5 this week.

As for the list, today is another batch of good-looking stocks from a variety of sectors, albeit with a heavier emphasis on medical. Our Top Pick is old favorite Dexcom (DXCM)—start small and build if the recent strength continues.

Stock Name	Price	Buy Range	Loss Limit
Array Biopharma (ARRY)	46.35	16.5-17.5	15-15.5
Cree, Inc. (CREE)	67.96	44.5-46.5	41-42
Dexcom (DXCM)	421.36	137-144	122-126
Everbridge (EVBG)	107.90	53-56	49-50.5
Five Below (FIVE)	134.58	112-117	100-103
Ionis Pharmaceuticals (IONS)	73.34	55.5-57.5	51-52
Keysight Technologies, Inc. (KEYS)	97.20	64-66.5	58.5-60.5
LGI Homes (LGIH)	86.04	54-57	49-51
Tandem Diabetes (TNDM)	74.77	39.5-42.5	33.5-35.5
Vertex Pharmaceuticals (VRTX)	230.36	180-187	165-169

In the first week of 2019, a better overall stock market, weaker U.S. dollar, bargain hunting, and hopeful signs of a temporary truce in the U.S.-China trade war have all helped push our Emerging Markets Timer back into a bullish mode.

As with our prior signals, we’re not advising you to jump in with both feet since there is still a fair amount of uncertainty out there and the iShares EM Fund (EEM) needs to demonstrate staying power and work through some resistance. Still, we are extending our line a bit with our two new buys in today’s issue.

Congratulations to our big winners and thank you to all of our contributors. It was a difficult market last year, but these results reflect how—with the right expert help—it is possible to beat the markets.

In this issue, we recap our big winners from last year, and have a very nice—and diversified list—of a group of stocks that promise great potential for 2019.

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 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.

The market is having a mixed day so far, with the Dow up slightly, the Nasdaq down slightly and with many individual growth stocks in the red.

One of our stocks is down 12% this morning after reporting another mixed-but-good quarter yesterday afternoon.

One of our stocks reported earnings last night, and although sales were stronger than expected, EPS fell one cent short of estimates.

This trucking company beat analysts’ estimates by $0.02 in its last quarter, and Wall Street is expecting double-digit growth next year.

Two of our stocks reported strong quarterly results.

Wall Street believes this healthcare stock is going to produce double-digit growth over the next five years. The shares were recently upgraded by Morgan Stanley to ‘Overweight’.

The earnings forecasts for this pharma company were just increased by 14 analysts, and the stock has received two upgrades.

Three analysts have increased their earnings estimates for this telecom company in the last 30 days.

The earnings forecasts for this internet marketplace have been raised by 11 analysts in the past 30 days.

When share prices fall, it’s important to determine whether the situation will last for a couple of months, which can be quite normal, or for several years, which can be insufferable.

With a sizeable earnings beat ($0.29), 14 analysts have now raised their forecasts for this drug 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.