In choosing today’s stock, I deliberately looked for one that was not hitting new highs, a stock with limited downside. And what I found was a stock that came public recently—to great fanfare—but that has since cooled off and settled down to what I believe is a buyable bottom.

Current Market Outlook


A week ago at this time, all the major indexes had just broken below their 50-day moving averages, key sectors were lagging and hardly any stocks were heading consistently higher. But since then, the market has acted very well, capped by today’s French election-induced move higher; it’s looking more and more like the prior dip could have been the final, news-driven shakeout (North Korea fears) to the market’s seven-week consolidation. That said, we don’t want to get carried away—while the Nasdaq hit new highs today, other indexes haven’t yet, and we’re still smack dab in the middle earnings season, which will have a lot to say about the market’s near-term fate. All told, we’re bumping our Market Monitor back up to a level 7 and will look to raise it further if the market holds (or builds) on its gains in the days ahead.

This week’s list is heavy on growth ideas, which is good to see given the market’s recent struggles. For our Top Pick, we’ll go with a strengthening liquid leader—Alibaba (BABA) looks ready to challenge all-time highs, though with earnings likely out in a couple of weeks, keep new positions small.

Stock Name	Price	Buy Range	Loss Limit
Activision Blizzard, Inc. (ATVI)	0.00	49-51	45-46
Alibaba (BABA)	254.81	106-112	90-100
Autodesk (ADSK)	229.00	87.5-90	82-84
Chipotle Mexican Grill (CMG)	773.32	455-475	420-430
Cotiviti (COTV)	0.00	40-42	36.5-38
Dycom Industries (DY)	0.00	102-106	94-96
IAC/InterActiveCorp (IAC)	0.00	74-78	69-71
Intuitive Surgical, Inc. (ISRG)	0.00	780-815	735-745
Momo Inc. (MOMO)	44.65	36-38	32-33
Ollie’s Bargain Outlet (OLLI)	103.94	35-37	31.5-32.5

Most of our recommended stocks are acting great, and our new recommendation checks many of the boxes we look for when hunting for a long-term winner. It is a dominant restaurant company in China, and the stock just got going after a few months of base-building.

After surging to new highs in mid-March, today’s recommendation entered into a tight consolidation pattern—and today it’s still in that pattern! While the broad market has pulled back, this stock has held up strongly, which is a very good sign.

Current Market Outlook


Last week saw all the major indexes close clearly below their 50-day moving averages, a development which, combined with another batch of breakdowns among leading stocks and cracks in key sectors (like chip stocks), has us taking another couple of steps back—we’re moving our Market Monitor down to a level 5 (out of 10) in today’s issue. To be clear, the market isn’t a disaster here, as most major indexes are just 3% or 4% from all-time highs, many stocks (especially growth stocks) are still relatively resilient and the longer-term uptrend isn’t in doubt. But the onus is on the bulls to take a stand. After six weeks of correcting and consolidating, we need to see buyers step up before putting a bunch of new money to work. In the meantime, we’re holding some cash and keeping new buys small.

Encouragingly, our screens are still picking up on plenty of attractive charts and stories. Our Top Pick is Innoviva (INVA), which has a couple of asthma treatments that are raking in the dough (much of it from royalties). It’s thinly traded, so consider buying a small position on dips.

Stock Name	Price	Buy Range	Loss Limit
Align Technology (ALGN)	316.20	111-114	102-104
Arista Networks (ANET)	0.00	129-133	119-121
Bioverativ (BIVV)	0.00	54-57	49.5-51
HP (HPQ)	0.00	17.7-18.2	16.7-17
Innoviva (INVA)	0.00	13.5-14.2	12.5-12.8
JD.com (JD)	39.58	31.5-32.5	29.5-30
MACOM Technology Solutions (MTSI)	0.00	49-51	46-47
PulteGroup (PHM)	45.93	23.4-24.4	22-22.5
Seagate Technology (STX)	0.00	46.5-49	43-45.5
Yum China (YUMC)	0.00	31.5-33	29-30

This month’s Cabot Enterprising Model contains 16 companies that offer you a mix of low- and moderate-risk stocks to add to your portfolio. In the issue, I feature five stocks, including one new stock that holds great promise.

The market has been inundated with bad news lately, but so far, the indexes are holding up relatively well, and we’re pleased to see the selling pressures on the broad market ease. (Our Two-Second Indicator is positive again.) We continue to believe the next major move will be up.

Our contributors found ideas with great potential in just about every sector this month, and our Spotlight Stock is a company that has taken the lead in women’s healthcare, particularly in the diagnostic, surgical and medical-imaging products sectors.

Hello from sunny Florida!

I am on vacation with my family this week, taking a much-needed break from the harsh, snowy Vermont winter (and narrowly making it down here ahead of the latest blizzard to dump another foot or two of snow on the Northeast). But with so much going on in the market – tariffs rejected! GDP growth slowing! AI panic! – I wanted to provide an update on everything that’s going on with our stocks.

It’s the same basic market story as it has been for the last four months. Technology is floundering while other sectors are killing it. But a couple of events occurring this week could potentially change the dynamic.

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.

==

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%.

It looks like one of our stocks may be falling prey to a change in regulatory action by the Chinese government. Sell Yirendai (YRD).

I’m putting J.M. Smucker (SJM) on Hold today while we wait to see if the stock can find support, but I don’t think the earnings report merits selling.

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.