In today’s issue, we talk about some of the clues to identifying abnormal action, which earlier this year led us to sell a couple of stocks that have since been hit hard, while holding onto some leaders that are beginning to re-emerge. It’s an art as much as a science, but we think the discussion will help you hold your highest-potential holdings through tough corrections.

We’re clearing one underperforming stock from the portfolio today, and putting one dividend stalwart back on Buy. In today’s issue, you’ll also find a very high-yielding new addition, a recap of our sell strategy and updates on all our stocks.

The market rebound over the past few weeks has been very impressive; it’s now turned our intermediate-term timing indicator back to positive. But buying after such a spike is risky, so today’s recommendation is a beaten-down stock that has nowhere to go but up.

Current Market Outlook


We can’t complain about the market’s action recently—the major indexes have (at the very least) held the strong gains of the past couple of weeks, with the strongest among them (like the Nasdaq) pushing higher. And many individual stocks (especially growth stocks) look vibrant, which is a plus. That said, we can’t conclude that the bulls are back in control, as most major indexes are still hovering around their 50-day lines, and in the broad market, the number of stocks hitting new highs (even on the strong Nasdaq) remains very low. We’re close to an all-clear signal, and think it’s fine for you to hold your strong stocks and do a little buying here or there. But right now, we’re keeping our Market Monitor at neutral until we see confirmation of an uptrend.

This week’s list has a ton of good stories and charts, with growth stocks well represented. It’s hard to pick just one, but we’ll go with Red Hat (RHT), which looks like a big-cap leader of the leading software group.

Stock Name	Price	Buy Range	Loss Limit
Arch Coal (ARCH)	82.27	95-99	87-89
GoDaddy (GDDY)	0.00	58-61	53-55
MuleSoft (MULE)	0.00	28.5-30.5	26-27.5
Netflix, Inc. (NFLX)	423.92	280-290	255-260
Planet Fitness (PLNT)	0.00	34-36.5	31-32.5
Red Hat (RHT)	0.00	142-148	130-134
TAL Education (TAL)	50.49	35-37	32-33
Twilio (TWLO)	183.39	31.5-33.5	28-29.5
Vale S.A. (VALE)	15.40	13.7-14.5	12.6-13
Zendesk (ZEN)	82.19	40.5-42.5	36.5-38

Emerging market stocks have followed the lead of the major U.S. indexes by executing a V-shaped bounce from their January/February slump and most of our stocks are in good shape. We’re keeping an eye on Chinese New Year as an economic force and on the battle between Alibaba and Tencent/JD.com for leadership in the Chinese online retail race. And we have a high-flying Chinese biopharmaceutical company to fit into the portfolio.

While the market’s volatility increases the need for selective stock picking, it also presents some fantastic opportunities to buy stocks whose shares have been discounted through no fault of their own. Our contributors are pouncing on those ideas.

Today’s stock is from one of the hottest sectors of the market, China, and it’s got a big growth story—as well as the beginnings of a move to expand outside of China. As for our current stocks, in general all is well, not least because of the market’s recent rebound. In fact, we’ve got several stocks hitting new highs!

Current Market Outlook


Most major indexes have recouped a bit more than half of what they lost in the recent two-week plunge and are now standing above or just below their 50-day moving averages—so what happens from here will be vital. A continued rally would turn the intermediate-term trend positive and tell us to become more aggressive, but renewed weakness would be a sign that the sellers are still lurking. Meanwhile, it’s hard not to be encouraged by the action of leading stocks, many of which have rebounded nicely, with some (including a few in this issue) pushing to all-time highs. We’re nudging our Market Monitor back to neutral, and will take our cues from the market and leading stocks in the days ahead.

This week’s list is the second straight that’s featured a bunch of resilient growth stocks, which tells you where big investors are putting money to work. Our Top Pick is Weibo (WB), the Chinese social media giant that broke out to new highs last week.

Stock Name	Price	Buy Range	Loss Limit
HubSpot (HUBS)	582.89	102-106	93-96
Okta, Inc. (OKTA)	148.41	32-34.5	30-31
Paycom Software (PAYC)	0.00	90-95	83-86
Sangamo BioSciences (SGMO)	0.00	21.5-23.5	18.5-20
Shopify (SHOP)	585.00	130-138	117-123
SolarEdge Technologies Inc. (SEDG)	124.37	42-45	39-40.5
Steel Dynamics (STLD)	0.00	47-49	43-44
Weibo (WB)	98.16	130-135	112-117
Workday (WDAY)	194.88	119-124	110-113
Yandex (YNDX)	0.00	40-41.5	36.5-38

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.

Verizon (VZ) reported earnings that missed estimates this morning. U.S. Bancorp (USB), on the other hand, reported estimate-beating earnings.

The top five holdings in this fund are Oracle Corp (ORCL, 3.70% of assets); Tencent Holdings Ltd (TCTZF, 3.53%); United Technologies Corp (UTX, 3.22%); American International Group Inc (AIG, 3.19%); and Citigroup Inc (C, 2.98%).

This financial company beat earnings estimates by $0.03 in the last quarter, and two analysts have recently increased their forecasts for this year and next.

This healthcare company beat analysts’ earnings estimates by $0.07 last quarter, and is on target for double-digit growth in the next five years.

This home builder beat analysts’ earnings estimates by $0.07 last quarter, and its shares were recently upgraded by RBC Capital Mkts to ‘Outperform’.

The stock market weakened in recent days, with many industries spiking downward. The only industry that anybody’s been asking me about is steel, so let’s get right to that.

The Chinese internet company beat earnings estimates by $0.19 last quarter and Barclay’s recently upgraded its shares to ‘Overweight’.

This technology company’s shares were just initiated at Macquarie with an ‘Outperform’ rating.

In addition to Barron’s, JP Morgan analysts have ranked this solar company’s stock ‘Outperform’.

We still believe the odds favor the next big move being up, but near-term, the outlook is up in the air. Thus, we’re holding our resilient performers, but we’re also holding some cash and getting rid of stocks that break support.

This shipbuilding company is also ranked a ‘Strong Buy’ by Zacks, based on impressive earnings revisions (up $0.88), sales, dividend and EPS growth.

This digital printing company beat analysts’ estimates by three cents last quarter, and is forecast to grow at more than a 50% rate 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.