We wrote last week about how the unusually persistent rebound in the market bodes well going forward. And the good vibes have continued since then, with gaggles of growth stocks rising nearly every day and a vacuum of selling pressure. Also impressive is how stocks have reacted to their quarterly reports—earnings season is nearly over, but we can’t remember a time when so many stocks have gapped up on their results. Of course, the market isn’t a one-way street, and forgotten are many of the worries of a month ago; some shakeouts are sure to occur. But such power on the upside usually doesn’t just disappear. We remain optimistic.

This week’s list reveals a broad swath of strong stocks from many industries. Our Top Pick is AerCap Holdings (AER), a firm that buys and leases airplanes. Business is strong, earnings estimates are huge and a recent acquisition is a game changer.

Stock Name	Price	Buy Range	Loss Limit
Domtar (UFS)	0.00	104-110	96-97
Trinity Industries (TRN)	0.00	65-67	59-60
RetailMeNot (SALE)	0.00	41-43	36.5-37.5
O’Reilly Automotive (ORLY)	0.00	150-155	142-143
Nabors Industries (NBR)	0.00	21-22.5	19-19.5
Harman International Industries, Inc. (HAR)	0.00	102-105	93-95
Freescale Semiconductor (FSL)	0.00	21-22	18-19
FireEye (FEYE)	0.00	73-75	63-65
HomeAway, Inc. (AWAY)	0.00	45-48	41-41.5
AerCap (AER)	0.00	41-43	35-36

When evaluating the market, you want to pay attention to unusual activity (good or bad), and the non-stop recovery by the market during the past two weeks strikes us as unusually bullish—eight times out of 10 the market will stall out during the rally, but so far, there’s been a vacuum of selling pressures. That doesn’t mean everything is rosy (many divergences have popped up, and the number of stocks hitting new highs is much smaller than it was in January), but the persistent snapback is enough to put our Market Monitor back into a lean-bullish stance. And that means you should do some buying in some newly-powerful stocks.
This week’s list has a bunch of newer names that are mostly on the growth side of the fence. Our Top Pick is Demandware (DWRE), a small company with a big story. It’s thinly traded, so be sure to keep your position smaller than normal.

Stock Name	Price	Buy Range	Loss Limit
YY Inc. (YY)	0.00	63-66	56-58
Tesla, Inc. (TSLA)	818.87	190-195	165-170
SolarCity (SCTY)	0.00	70-75	63-64
Proofpoint (PFPT)	113.79	37.5-40.5	34-34.5
Monster Beverage Corporation (MNST)	0.00	70-71.5	62-64
Jones Lang LaSalle (JLL)	0.00	114-119	104-106
Intercept Pharmaceuticals (ICPT)	0.00	300-340	250-260
E*Trade Financial (ETFC)	0.00	21-22	19-19.5
Demandware (DWRE)	0.00	68-70	59-60
Athenahealth (ATHN)	0.00	180-187	160-162

The fact that the major indexes and, especially, a ton of growth stocks bounced sharply late last week is a bullish sign; it at least tells you buyers are still interested, especially when it comes to some fast-growing names that recently reported outstanding results. That said, we can’t conclude the market is off to the races again—all the major indexes (save the Nasdaq) are still below their 50-day lines, the number of stocks hitting new highs is still tiny, and much of the broad market has taken on lots of water. Some new buying is fine, as is holding your top performers, but be sure to hold some cash until the market confirms a new uptrend.

This week’s list has a bunch of stocks that are acting bullishly, including a few that recently gapped up on earnings. Our Top Pick is Michael Kors (KORS), a well-sponsored name that reported a blowout quarter last week. Try to buy on dips.

Stock Name	Price	Buy Range	Loss Limit
Yelp (YELP)	41.30	86-92	75-76
Valeant Pharmaceuticals (VRX)	0.00	133-138	124-125
USG Corp. (USG)	0.00	31-33	29.5-30
Salix Pharmaceuticals (SLXP)	0.00	95-99	89-90
ServiceNow (NOW)	341.86	63-65	57-58
Michael Kors Holdings Limited (KORS)	73.22	91-96	83-84
Incyte Corporation (INCY)	76.98	62.5-65	54-55
Keurig Green Mountain (GMCR)	0.00	102-107	89-90
Tableau Software (DATA)	126.42	84-88	78-80
Canadian Solar (CSIQ)	0.00	36.5-38.5	32-33

Last week’s market action provided an awesome opportunity to discover leading stocks; they were the ones that quickly bounced back from the broad market selling and broke out to new highs! It’s not often you get such a clear opportunity to separate the wheat from the chaff, but when you do, it’s worth taking advantage of. Today, all those stocks that broke out are on our favored list, while those that bounced weakly are suspect. And those that did worse? They should be sold—note that our Hold list on page 12 has shrunk a bit. Also arguing for selling is the fact that our Market Monitor remains in neutral territory, mainly because the market’s intermediate-term trend is down. In short, holding some cash and keeping new buys small is advised. Our favorite stock in today’s crop is WebMD (WBMD), which has solid growth prospects and a great technical set-up.

Stock Name	Price	Buy Range	Loss Limit
WebMD Health Corp. (WBMD)	0.00	44-46	39-40
Twitter (TWTR)	40.37	60-65	54-55
Sangamo BioSciences (SGMO)	0.00	16.5-18.5	14-15
Royal Caribbean Cruises (RCL)	0.00	47-50	45-46
Qihoo 360 (QIHU)	0.00	95-98	84-85
Pandora Media Inc. (P)	0.00	33-36	30-31
NPS Pharmaceuticals (NPSP)	0.00	32-35	29-30
Keryx Biopharmaceuticals (KERX)	0.00	14-15.5	12.5-13.5
Facebook, Inc. (FB)	0.00	60-62.5	55-56
Concur Technologies (CNQR)	0.00	113-115	100-102

The big news today is that last week’s market weakness turned our intermediate-term market-timing indicator negative. But no one indicator is perfect, and at Cabot, we use another indicator to measure the market’s long-term trend—and that indicator is still positive. Thus it’s a standoff, which means our Market Monitor is positioned at dead neutral. Short-term, we tend to think the market is ripe for more of a pullback, simply because it’s had such a great, long advance. But long-term, we remain optimistic that once the correction is complete, the main uptrend can continue, and this thinking, in part, is because there are so few investment alternatives! In any event, our goal is to continue presenting you with stock that are most prone to short-term strength, and this issue brings a nice mix of old and new. Read them all, choose your favorite story, and work to find a good entry point. Our favorite this week is Twitter (TWTR), which has a huge fundamental story and a decent technical setup.

Stock Name	Price	Buy Range	Loss Limit
Valeant Pharmaceuticals (VRX)	0.00	125-131	123-124
VeriSign (VRSN)	190.71	58.5-60.5	56-57
Vipshop Holdings (VIPS)	14.25	91-95	80-82
Twitter (TWTR)	40.37	56-62	52-53
Insulet (PODD)	175.69	41-43	39-40
Pandora Media Inc. (P)	0.00	31-33	29-29.5
Medivation (MDVN)	0.00	70-75	69-70
The Hain Celestial Group, Inc. (HAIN)	0.00	91-93	83-85
Gilead Sciences (GILD)	75.10	76-79	73-74
CalAmp (CAMP)	0.00	27-29	24-25

The evidence has generally improved during the past two weeks, with the major indexes remaining in solid uptrends and, most encouragingly, more growth-oriented stocks showing power and emerging from basing structures. All of that is to the good, but earnings season is ramping up, and we know that can change any stock’s or sector’s outlook in a hurry. Put it together, and we’re still sticking with our lean bullish stance—now’s probably not the time to buy five or six stocks at once, but there are many attractive names out there, and getting in at opportune times should pay off.

This week’s list is heavy on growth stocks, though there are a couple of cyclical and special situation ideas, too. Our favorite of the week is HomeAway (AWAY), a firm we remain keen on, and a stock that’s testing support for the first time since a powerful November breakout.

Stock Name	Price	Buy Range	Loss Limit
T-Mobile US (TMUS)	0.00	30-32	27-28
SolarCity (SCTY)	0.00	70-74	63-64
Altisource Residential (RESI)	0.00	31.5-33	29-29.5
Pacira Biosiences (PCRX)	54.85	63-65	53-55
Palo Alto Networks (PANW)	236.92	60-62.5	55-56
The Manitowoc Company (MTW)	0.00	23.5-25	21.5-22
Harman International Industries, Inc. (HAR)	0.00	87-90	80-81
Forest Labs (FRX)	0.00	65-70	59-60
HomeAway, Inc. (AWAY)	0.00	40-42	37-37.5
AOL, Inc. (AOL)	0.00	48-50	44-45

We’ve seen mixed action since the year began, which isn’t totally surprising given January’s normal wiggles. The major indexes are churning a bit up near their highs, something that can lead to short-term selling; at the very least, it’s telling you that buying pressures have eased as the calendar has flipped. On the other hand, we’re encouraged to see some growth stocks that had been sitting out the dance since early October begin to reassert themselves—so far this year, we’ve seen a handful of breakouts from legitimate bases, the first collection of breakouts since November, and most held well even in today’s selloff. All told, we continue to lean bullish, though we’re watching things closely.

This week’s list has a bunch of promising names, including a few with terrific growth stories. Our favorite of the week is Arris Group (ARRS), which, thanks to a huge acquisition last year, is a leading provider of next-generation set-top boxes. Try to buy on weakness.

Stock Name	Price	Buy Range	Loss Limit
Yelp (YELP)	41.30	74-78	69-70
United Therapeutics (UTHR)	0.00	105-110	95-97
United Continental Holdings (UAL)	96.76	43-45	39-40
Splunk (SPLK)	207.67	72-74	64-65
Pandora Media Inc. (P)	0.00	31.5-33.5	29-29.5
Medivation (MDVN)	0.00	68-70	63-64
JinkoSolar Holding (JKS)	0.00	31-34	28-29
FireEye (FEYE)	0.00	53-57	47-48
Broadcom Limited (AVGO)	266.26	50-52	47-48
Arris Group (ARRS)	0.00	23-24.5	20-21

The evidence has gotten a bit worse during the past week, with more misses than hits among leading growth stocks, and with the major indexes sagging a few days in a row. That said, early January is often tricky, with lots of crosscurrents, profit taking, repositioning and so on, so we’re hesitant to change our stance for the moment unless we see a decisive show of strength or weakness. The good news is that we are seeing more proper set-ups from many names that rested during the past six to 10 weeks; if a bunch of them emerge, it would give us some newer, fresher leadership to sink our teeth into.

This week’s list includes a bunch of smaller and less-well-known ideas, which we view as a good thing; most of the “obvious” stocks are either chopping around or suffering through some selling. Our Top Pick this week is YY Inc. (YY), which has had a huge run, but isn’t overly pricey and just surged out of a multi-week tight area. It’s very volatile but the potential is big.

Stock Name	Price	Buy Range	Loss Limit
YY Inc. (YY)	0.00	54-58	49-50
WisdomTree (WETF)	0.00	16-17	14.5-15
Western Digital Corporation (WDC)	0.00	80-83	75-76
Workday (WDAY)	194.88	81.5-85.5	77-78
Spirit AeroSystems (SPR)	92.54	32.5-34	30.5-31
NPS Pharmaceuticals (NPSP)	0.00	30.5-32	26-27
Jazz Pharmaceuticals (JAZZ)	0.00	120-127	112-113
Himax Technologies (HIMX)	0.00	12.5-14	11.5-12
E-House Holdings (EJ)	0.00	13.5-14.5	11-12
Canadian Solar (CSIQ)	0.00	33-35	28-29

It’s been a fun and fruitful 2013, and we hope you were able to snag a few winners this year. That said, while we enjoy reviewing this past year as much as anyone, our focus is on the present and the future—so far, the overall market is in fine shape, though intriguingly, despite what is supposed to be a quiet time of year, we’ve seen a few sharp selloffs among growth stocks during the past couple of days. Of course, there are always lots of crosscurrents at year-end, but it’s imperative to keep your eyes open, pick your spots on the buy side and have some stops in place should the selling spread. Right now, though, we’re sticking with our lean bullish stance and will see how things shake out when the calendar turns.
This week’s list is very diversified, with many different industries represented. Our favorite of the week is Salix Pharmaceuticals (SLXP), a solid growth firm whose recent buyout of Santarus could be a gamechanger.

Stock Name	Price	Buy Range	Loss Limit
United States Steel Corporation (X)	0.00	28-30	26-26.5
Valero Energy (VLO)	97.40	46-47	42-43
United Therapeutics (UTHR)	0.00	105-112	97-100
Seagate Technology (STX)	0.00	53-55	49-50
Salix Pharmaceuticals (SLXP)	0.00	86-90	81-82
Royal Caribbean Cruises (RCL)	0.00	45-47	39-40
NXP Semiconductors (NXPI)	0.00	43-45	40-41
Legg Mason Inc. (LM)	37.44	40-42	38-39
Facebook, Inc. (FB)	0.00	52.5-55.5	48-49
Conn’s Inc. (CONN)	0.00	74-78	68.5-69.5

The sellers did some damage last week, with many major indexes falling close to their 50-day moving averages. Today’s bounce obviously helps the situation, but even before today, many growth stocks were holding up well, with a few shooting ahead, despite the market’s troubles. Few stocks are running away on the upside, so we’re content to keep our Market Monitor just outside of bullish territory. But the action is another piece of evidence that growth stocks might finally be turning the corner.

This week’s list is a mixed bag of growth-ier ideas, but also some special situations. Our top pick is Forest Labs (FRX), a large company whose stock is enjoying increased institutional support. The current pullback offers a decent entry point.

Stock Name	Price	Buy Range	Loss Limit
United Rentals, Inc. (URI)	0.00	70-72	64-65
SouFun (SFUN)	0.00	70-72	60-61
IntercontinentalExchange, Inc. (ICE)	0.00	210-220	188-190
Huntington Ingalls (HII)	0.00	78-82	74-75
Generac Holdings (GNRC)	86.60	50-52	47-48
Forest Labs (FRX)	0.00	53-55	48-49
DreamWorks (DWA)	0.00	31-33	28-29
Buffalo Wild Wings (BWLD)	0.00	137-143	129-131
Arris Group (ARRS)	0.00	20-21	17-18
Advance Auto Parts (AAP)	0.00	104-108	96-98

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.

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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%.

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.