Issues
The market’s weak start to September and this Monday’s decline flipped our Cabot Tides to bearish; we responded by selling half of our leveraged long fund (SSO) and holding the cash. However, even with that decline, we were encouraged to see growth stocks hold firm, and the bounce back since then has also been good to see. If this turns out to be one big shakeout, there are many names on our watch list that we’d like to start positions in, but it’s too soon to conclude that.
Tonight, we have no changes, though the next few days should be key.
Tonight, we have no changes, though the next few days should be key.
Despite the recent dicey market, there are two great opportunities created by a weird interest rate move that is likely to correct itself in the months ahead.
The yield curve, defined as the difference between short- and long-term interest rates, has flattened as the benchmark 10-year Treasury rate has fallen. The rate has fallen from 1.75% in February to the current 1.31%, despite the stronger economy and persistent inflation.
I believe rates have moved far too low. Interest rates are still well below what has been defined as normal for the last decade. The 10-year rate is still well below the pre-pandemic level. Plus, the benchmark rate averaged between 2% and 3% during both the Obama and Trump Administrations.
Interest rates have fallen too far and are likely to trend higher in the months ahead. Two portfolio stocks benefit from the difference between short and long rates and have been held back by the falling rates. These stocks are likely to move higher as the situation reverses
The yield curve, defined as the difference between short- and long-term interest rates, has flattened as the benchmark 10-year Treasury rate has fallen. The rate has fallen from 1.75% in February to the current 1.31%, despite the stronger economy and persistent inflation.
I believe rates have moved far too low. Interest rates are still well below what has been defined as normal for the last decade. The 10-year rate is still well below the pre-pandemic level. Plus, the benchmark rate averaged between 2% and 3% during both the Obama and Trump Administrations.
Interest rates have fallen too far and are likely to trend higher in the months ahead. Two portfolio stocks benefit from the difference between short and long rates and have been held back by the falling rates. These stocks are likely to move higher as the situation reverses
Last week the major indices took another small step backwards. The S&P 500 lost 0.57%, the Dow fell 0.06%, and the Nasdaq declined 0.41%.
The decline deepened among all the major indices Monday as ongoing uncertainties around Chinese property developer Evergrande heightened. Evergrande faces a debt payment on its offshore bonds Thursday, so until some clarity is seen I would expect to see further volatility.
The S&P 500 has now witnessed a 4.4% decline since the closing highs back on September 2. So the 5% pullback everyone has been discussing over the past several weeks could come to fruition over the next few trading sessions.
To be more defensive, this week I am going to sell in-the-money calls to stay a bit on the safe side.
The decline deepened among all the major indices Monday as ongoing uncertainties around Chinese property developer Evergrande heightened. Evergrande faces a debt payment on its offshore bonds Thursday, so until some clarity is seen I would expect to see further volatility.
The S&P 500 has now witnessed a 4.4% decline since the closing highs back on September 2. So the 5% pullback everyone has been discussing over the past several weeks could come to fruition over the next few trading sessions.
To be more defensive, this week I am going to sell in-the-money calls to stay a bit on the safe side.
The bull market remains intact, despite this morning’s sharp selloff, so I continue to recommend that you be heavily invested in stocks that help achieve your investing goals.
Today’s featured stock is a very conservative one, a solid financial institution with a good dividend, and the prospect of growing earnings as interest rates rise.
As for the current portfolio, there are no changes. It will be interesting to see which stocks bounce best after the selling pressures ease.
Today’s featured stock is a very conservative one, a solid financial institution with a good dividend, and the prospect of growing earnings as interest rates rise.
As for the current portfolio, there are no changes. It will be interesting to see which stocks bounce best after the selling pressures ease.
Current Market OutlookOur intermediate-term trend model has effectively been neutral for months, with the big-cap indexes acting pretty well but most other areas chopping sideways. Today, though, the sellers got their act together, with the S&P 500 decisive diving below its 50-day line and small caps actually falling below their 200-day line! That’s certainly a change in character and, for the first time in months, turns the intermediate-term trend down. Of course, the evidence hadn’t quite lined up for a while now, so we’ve been playing it more cautiously than normal, but now it’s time to step carefully and see how this plays out. As for positive tidings, there are some: The bad news out there (Chinese real estate) is obvious, and looking at individual stocks, many growth titles are now holding up far better than the Dow or S&P 500 (a marked change from earlier this year). Thus, we’re still holding our resilient names and are OK doing a little buying as stocks pull in to support, but it’s not time to be a hero, with the focus shifting more toward preserving capital. Our Market Monitor has moved to a level 5.
If you are aiming to put a little money to work, you want to look for names that have recently shown good-volume buying. Happily, this week’s list has many names in this club, and our Top Pick is Lululemon (LULU), which is emerging from a long rest and has held its recent earnings gap despite the market’s dip.
| Stock Name | Price | ||
|---|---|---|---|
| Align Technology (ALGN) | 710 | ||
| Catalent Inc (CTLT) | 136 | ||
| Chesapeake Energy Corporation (CHK) | 60 | ||
| Cloudflare (NET) | 127 | ||
| Entegris (ENTG) | 129 | ||
| KKR & Co. L.P. (KKR) | 62 | ||
| Lending Club (LC) | 27 | ||
| Lululemon Athletica (LULU) | 420 | ||
| Natera (NTRA) | 120 | ||
| Wingstop (WING) | 182 |
U.S. stocks struggle a bit to regain momentum as Hong Kong’s Hang Seng and China’s Shanghai Composite contract. Investors seem to be taking a close look at valuations as markets from Japan to Europe trade at lower valuations. The big $3.5 trillion spending bill is spooking U.S. markets and splitting U.S. Senators. Today our new recommendation is a play on the aging baby boomer generation, which will increasingly require more medical attention.
A continued mixed bag of signals from Greentech still yields some good stocks to profit with. We’ve been muddling through “two steps forward and one step back” kind of action, which means today’s market may seem bad, but the bigger picture keeps improving. The key is to continue to be diligent about avoiding weak stocks and search for good fundamental underpinnings to chart moves with the strong ones. The market is slowly laying the groundwork for the next leg of Greentech’s bull move.
This issue, we’re returning to a segment of Greentech that was red hot for a brief period before simple bad luck turned investors against it for years. The sector recently broke through long-held resistance. That’s a plus. Our featured stock has a monopoly on parts of its market. It’s nicely priced for its existing business already, but its shift into next-generation technology suggests huge opportunities ahead – that’s a big plus.
We also have newly recommended ratings, suggested buy ranges for a couple, and updated sell-stops for many of our current portfolio holdings. We also now have “sell” call on one holding which has broken through support.
Read through for more details.
This issue, we’re returning to a segment of Greentech that was red hot for a brief period before simple bad luck turned investors against it for years. The sector recently broke through long-held resistance. That’s a plus. Our featured stock has a monopoly on parts of its market. It’s nicely priced for its existing business already, but its shift into next-generation technology suggests huge opportunities ahead – that’s a big plus.
We also have newly recommended ratings, suggested buy ranges for a couple, and updated sell-stops for many of our current portfolio holdings. We also now have “sell” call on one holding which has broken through support.
Read through for more details.
Last week all the major indices took a small step back. The S&P 500 lost
1.69%, the Dow fell 2.15%, and the Nasdaq declined 1.61%.
The headlines say the 5-day pullback was the largest for the S&P 500 since February. But considering that the streak of over 230 days without a 5% pullback is still in play, the short-term bearish stretch last week was minimal.
And even with the slight pullback last week, my sentiment has not changed. I remain
“cautiously optimistic” until I see market action that changes my mind.
Of course, if we see further continuation of the recent bearish trend, I might begin to shift my outlook. But a week doesn’t make a trend, and again we must remember we are only a few percentage points from all-time highs.
1.69%, the Dow fell 2.15%, and the Nasdaq declined 1.61%.
The headlines say the 5-day pullback was the largest for the S&P 500 since February. But considering that the streak of over 230 days without a 5% pullback is still in play, the short-term bearish stretch last week was minimal.
And even with the slight pullback last week, my sentiment has not changed. I remain
“cautiously optimistic” until I see market action that changes my mind.
Of course, if we see further continuation of the recent bearish trend, I might begin to shift my outlook. But a week doesn’t make a trend, and again we must remember we are only a few percentage points from all-time highs.
The bull market remains intact, so I continue to recommend that you be heavily invested in stocks that help achieve your investing goals.
Today’s featured stock is a small company that’s growing fast and that has huge growth potential as the market for intelligent vision systems booms.
As for the current portfolio, most of our stocks look good, and many are hitting new highs, but I have two sells, Supreme Brands (SPB) and Trulieve (TCNNF).
Details inside.
Today’s featured stock is a small company that’s growing fast and that has huge growth potential as the market for intelligent vision systems booms.
As for the current portfolio, most of our stocks look good, and many are hitting new highs, but I have two sells, Supreme Brands (SPB) and Trulieve (TCNNF).
Details inside.
Updates
This week is a still familiar story in the portfolio, with defensive stocks thriving and moving still higher.
U.S. stock markets have exhibited a high degree of volatility in recent weeks. There are lots of factors contributing to the turmoil, which will ebb and flow, probably for the rest of our lives. So let’s just circle back to why we’re here: We’re here to invest in stocks because over the long term, stocks outperform fixed income investments.
The market has been up, down and all over the place lately. So have our stocks. Oddly enough, from last Thursday’s close through yesterday’s close our portfolio is relatively unchanged—down just 2% using a simple average of each stock’s weekly return.
Remain cautious, but stay flexible. Our Cabot Tides are effectively back on the fence as the upmove of the past few days has been encouraging—a bit more strength could restore the Tides green light.
The market has undergone a radical personality transformation since I released the July issue last week. I’m not hitting the panic button, yet. But it is certainly a situation I will closely monitor.
Emerging and international markets are holding their own as U.S. markets hit new highs in the wake of modest interest rate cuts by the Fed.
Alerts
Please expect volatility, and that definitely includes periodic large market pullbacks. I’m not just saying that as a standard disclaimer. There’s a certain amount of irrational exuberance that’s taking place now.
Today is the expiration of our April Covered Calls. I don’t anticipate adjusting any of these positions today. Here are my thoughts on each.
Despite the market’s recent declines, this security system company has announced some very good preliminary results for its last quarter.
From top to bottom, the Marijuana Index fell 88% from early 2018 to last month’s market low, and now the recovery has begun.
Then yesterday, I sent out some stock trading ideas, and the dam burst. I heard from at least a dozen investors who are clamoring for specific trading ideas. Great!
This investment management company beat analysts’ earnings estimates by $0.65 last quarter, and four analysts recently raised their EPS forecasts for the company.
This is our first company this quarter to report earnings tomorrow morning before the opening bell.
This high yield preferred stock is issued by a mortgage REIT.
With the market surging today, 20 positions under coverage and five more coming tomorrow, we’re going to take advantage of the opportunity to trim a few positions.
The top five holdings of this fund are: Microsoft Corp (MSFT, 11.92%), Apple Inc (AAPL, 11.19%), Amazon.com Inc (AMZN, 9.58%), Facebook Inc A (FB, 3.98%), and Alphabet Inc A (GOOGL, 3.96%).
Shares of this stock are bucking the downtrend early on Monday after management announced late last week that it would take steps to cut an additional $30 million in costs by reducing the workforce by roughly 90 employees across sales, marketing, general/administrative and R&D departments.
Like many countries, Singapore is struggling with the impact of the coronavirus. But given that it is a city-state of 6 million people with a well-organized, effective government, it is well positioned to cope with all of this better than most.
Portfolios
Strategy
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.