Current Market Outlook


The market backed off late last week, but the overall picture hasn’t changed much—following a successful retest of the February lows, the major indexes are in a solid rally attempt, but that rally has yet to turn the intermediate-term trend up, either for the indexes or for the majority of leading stocks. There are many encouraging signs, and if the market rallies from here, the trend could turn up later this week; we’re ready and waiting for an all-clear signal should it come. But we learned long ago not to anticipate signals—right now, the trend is mostly sideways, few stocks are running away on the upside (most that have perked up fall back quickly) and most companies are set to report earnings over the next three weeks. Thus, we advise sticking with a cautious stance, which means holding some cash and keeping new positions on the small side.

This week’s list has a wide variety of stocks and sectors, all of which have shown great relative strength. Our Top Pick is Cheniere Energy (LNG), which has a unique story and a stock that’s built a great-looking base. Earnings are out soon, so start small.

Stock Name	Price	Buy Range	Loss Limit
Abercrombie & Fitch (ANF)	15.37	25-27	23-24
Autohome (ATHM)	98.65	92-95	85-87
Cheniere Energy (LNG)	63.82	56-58.5	51.5-53.5
E*Trade Financial (ETFC)	0.00	58-60	53.5-55
First Solar (FSLR)	83.74	72-75	66-68
InterXion (INXN)	0.00	63-65	58.5-60.5
Loxo Oncology (LOXO)	186.59	127-135	115-120
Netflix, Inc. (NFLX)	423.92	310-320	287-292
Pioneer Natural Resources (PXD)	0.00	190-195	177-180
TransUnion (TRU)	83.09	63-65	57.5-59

In this kind of so-so atmosphere, we are taking exactly what the market hands us and making decisions based on what the charts show us. That means a little selling today, but we also have an exciting and very new stock for our watch list. Read on for all the details.

The market seesaw continues, but overall, we’re trading at about the same levels as this time last month.

The most recent retail sales report showed improvement, as did housing starts. And with the unemployment rate and job openings steady, the economy continues on a positive trend. First quarter earnings—so far—look good, and the S&P 500 forward P/E of 16.4 tells us that values are not overblown.

The long-term trend of the market remains up, while the intermediate trend remains down, though the current rally is working to change that—and may well succeed. In any case, we’re seeing growing numbers of strong stocks, and today’s recommendation is one of them.

It’s a little-known technology stock providing a valuable public service, with a high rate of recurring income. I think you’ll like it.

Current Market Outlook


The positives are starting to accumulate when you’re talking about some secondary measures of the market’s performance—many growth stocks are holding up well, the broad market showed positive divergences when the indexes retested their February lows and the market’s clearly shrugged off a bunch of bad news. All of that is encouraging, and we’re nudging our Market Monitor up a notch in response. However, we’re still advising a relatively cautious stance because the market’s intermediate-term trend hasn’t turned up; most major indexes are still below key moving averages and, at best, are basically stuck in the middle of three-month trading ranges. We’re still in favor of giving your resilient stocks a chance to get going, and we don’t think the evidence supports being outright defensive. But holding some cash on the sideline, picking entry points carefully and/or keeping new positions on the small side still make sense.

This week’s list has many stocks that have staged breakouts (or come close) in recent days, even as the market is still iffy. Our Top Pick is WPX Energy (WPX), one of many oil stocks that’s come to life as that sector sets up.

Stock Name	Price	Buy Range	Loss Limit
Alcoa (AA)	0.00	52-55	47-50
Coupa Software (COUP)	262.20	46-48	43-44.5
Fiat Chrysler (FCAU)	0.00	22.5-23.5	20-20.5
GoDaddy (GDDY)	0.00	60-62.5	56.5-58
Heron Therapeutics (HRTX)	35.25	28.5-30.5	25-26.5
HollyFrontier Corporation (HFC)	0.00	54-56	49.5-51
Melco Resorts (MLCO)	0.00	29.5-31	27-28
RingCentral (RNG)	238.73	64.5-67	59-61
Semtech (SMTC)	51.09	41.5-43	38.5-39.5
WPX Energy (WPX)	0.00	14.5-15.5	13.1-13.7

It was another rocky month in the markets, but net-net, we are trading at about the same levels since last month’s issue.

We haven’t yet seen the buyers retake control (the intermediate-term trend is down and few stocks are moving up), so we’re sticking with a cautious stance. In the Model Portfolio, we are restoring one Buy rating, but we’re standing pat with 45% cash and are waiting patiently for the trend to turn up.

As we leave behind last week’s market lows—as well as the peak fears of tariff wars—it remains critically important to focus on the action of the market itself, and not be swayed by the news of the day. Which brings me to today’s recommendation, a fast-growing company with a revolutionary product whose stock hit new highs recently and is primed to do so again. You’ll find full details in the issue.

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.

One of our stocks reported yesterday after the close and nearly all the analysts following the company are disappointed, including me.

The shares of this food repurposing company are rated 1.6 (Buy) by Wall Street Analysts. The company has strong cash flow and is reducing its debt.

This fitness company has opportunities to expand its mission, but it is in the midst of a turnaround.

An update on one of our stocks, and ratings changes on two others.

This aircraft product maker’s shares are trading at a heavy discount due to an ongoing dispute with Bombardier.

This tele-health company’s shares were recently initiated as ‘Outperform’ at Robert W. Baird, and six analysts have raised their earnings forecasts for the company in the past 30 days.

Today’s bulletin describes a management change at one of our stocks and bullish price movements, especially among integrated oil stocks.

This infrastructure company beat earnings estimates by $0.10 in the latest quarter. Ten analysts have raised their forecasts for both this year and next in the past 30 days.

The top five holdings of this 3-star-rated fund are Credit Suisse Group AG (CSGKF, 4.72% of assets); CNH Industrial NV (CNHI, 4.71%); Lloyds Banking Group PLC (LLDTF.L, 4.68%); Allianz SE (ALIZF.DE, 4.50%) and Bank of America Corporation (BAC, 4.44%).

This is just a quick note to let you know that LATAM Airlines Group has changed its trading symbol. The old symbol was LFL. The new one is LTM.

This medical tech company beat analysts’ earnings estimates by $0.22 last quarter. The company is expected to grow at double-digit rates for the next five years.

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.