The good news is that fears of China tariffs have passed, and our Chinese stocks look better. The bad news is that formerly leading growth stocks are now being sold, while new leadership, like juggernaut Citigroup (C), comes to the fore. And additional good news is that all our Cabot market-timing indicators are once again positive, telling us the wind is at our back.
Bad news. Good news. The important thing is to watch each of your stocks carefully, nourish the ones that are doing what you hired them to do and fire the ones who don’t measure up.
This week, thanks to the big shifts in the market, we have an unusual number of rating changes, six! Details in the issue.

Current Market Outlook


The major indexes continue to show improvement, putting together their second straight week and, for some, rising to their highest levels since late July; our own intermediate-term trend model, in fact, is close to turning positive! That’s a good thing, no doubt, but we don’t (usually) buy the indexes—we buy leading stocks. And the evidence on that front is actually worsening: Many leading growth titles have actually been flashing abnormal intermediate-term action, especially in the software and cybersecurity areas, and we advise taking action when need be. (We have a number of sells on page 12.) That said, many recently strong names, especially turnarounds and some more cyclical-oriented stocks, are acting just fine. All told, it’s a very mixed environment with lots of crosscurrents, so the goal is to ditch stocks that are acting abnormally, and on the buy side, being picky, looking for stocks showing recent power that are near decent entry points.

This week’s list reflects what we’re seeing in the market, with some fresher growth-oriented names as well as some turnarounds with big projected growth. Our Top Pick is ASML Inc. (ASML), which looks to be leading a group upmove in the chip equipment space.

Stock Name	Price	Buy Range	Loss Limit
Ambarella (AMBA)	52.79	59-62	53-55
ASML Holding (ASML)	350.01	235-241	215-218
DocuSign (DOCU)	107.98	55-58	49-50.5
Fastly (FSLY)	39.31	25.5-28	22-23
Lululemon Athletica (LULU)	304.69	193-197	178-180
Medicines Company (MDCO)	56.98	44-46	37-39
Novocure (NVCR)	0.00	77.5-81	71-73.5
RH Inc. (RH)	252.93	147-154	133-135
Sanderson Farms (SAFM)	149.54	146-150	135-137
Western Digital Corporation (WDC)	0.00	60-63	53-54.5

What happens when you implement a digital marketing platform within secure online banking and mobile banking channels? Is that even possible?
The short answer is yes, it’s possible … if you can get banks to sell you their transaction data, host your platform and accept the revenue share agreements you propose for all the deals that consumers accept while logged in.
This month’s Cabot Small-Cap Confidential stock has created such a platform, and it’s taking off.
The story, and potential, of what happens when digital marketing and fintech walk down the aisle together is inside.

Emerging markets are seeing a boost from positive news out of Hong Kong and on the U.S.-China front. Our Emerging Markets Timer has raced higher in recent days, putting it within striking distance of a new buy signal. Our new recommendation comes from an unexpected country, but a well established semi-monopoly industry.

I hope you had an enjoyable and relaxing summer. Wall Street is back to work this week, and Apple (AAPL) is launching a new product or two next week, so get ready for stocks to start moving again.

Despite the daily focus on the worst aspects of the China tariff story, the fact is that the broad market has built a decent base (albeit loose) over the past month. Repeated tales of doom and gloom aren’t sending it any lower. Thus, I remain long-term bullish, though short-term somewhat cautious.And I continue to recommend that you maintain a portfolio full of diversified stocks that meet your investment goals. Last week’s recommendation was a hot growth stock, so this week we swing back to a conservative dividend-paying stock, one that is performing very well today.As for our current stocks, there are no changes. The last week of August changed little, but going forward, I expect a little more action, ideally to the upside. Details in the issue.

Current Market Outlook


The major indexes found some decent support last week, rallying back to the top of their ranges, but overall they’re still thrashing around in the same range they’ve occupied since early August, keeping the intermediate-term trend sideways-to-down. The one thing that did change late last week was a bout of rotation, with money flowing into the beaten-down areas (financials, transports, energy, etc.); it’s something to keep an eye on, but we can’t say it’s a new trend quite yet. All in all, the market is showing us a lot of movement, but little net progress—and thus, our overall advice hasn’t changed. We’re keeping our Market Monitor at a level 5, meaning you should be choosy and keep things small on the buy side, while holding some cash and honoring stops and loss limits with your weaker performers.

The good news, as it has been all year, is that there remain many stocks that looks ready to enjoy meaningful upmoves if the market can get its act together. Our Top Pick is New Oriental Education (EDU), a rare China-related stock that’s making new highs on good volume.

Stock Name	Price	Buy Range	Loss Limit
Burlington Stores (BURL)	193.95	195-198	179-182
Jacobs Engineering Group (JEC)	89.83	86-88	79.5-81
Meritage Homes (MTH)	102.20	63-66	57.5-59
Neurocrine Biosciences (NBIX)	123.40	95.5-98.5	88-90
New Oriental Education (EDU)	113.97	106-108	98-100
Take-Two Interactive (TTWO)	123.32	129-133	120-122
Tandem Diabetes (TNDM)	74.77	67-70	60-62
Trex Company (TREX)	117.56	80-83	74-76
Twitter (TWTR)	40.37	40.5-42.5	37-38
Wheaton Precious Metals (WPM)	34.43	28-29	25.5-26.5

Successful short-selling is more complex than just being “the opposite of long investing.” Shorting goes against the general upward trend in stock prices and against human nature that strives for making companies run better. But as long investors, we can use these short-selling risks to our advantage.

In this issue, we feature six stocks that have large short interest yet have pending turnarounds that could force short-covering.

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.

Eight analysts have raised their EPS estimates on this home improvement retailer in the past 30 days.

This financial company is forecast to grow by more than 30% annually for the next five years.

This manufacturer of hi-tech beds is coming back from a rough quarter, but analysts expect it to produce 21.5% growth this year and 24.3% in 2019.

Our second recommendation is to sell the remaining shares of Weibo.

Revenues were up 59% in the most recent quarter for this Chinese tutoring company, and eight analysts have increased their EPS estimates in the past 30 days.

We’re selling our position in one stock today.

This medical device company beat analysts’ estimates by $0.09 last quarter and 13 analysts have increased their EPS estimates for the company in the past 30 days.

This defense company’s shares are just about at the buying level again.

We will provide the top five holdings in this Value fund.

Analysts expect this medical device company to post 20% annual growth for the next five years.

Analysts expect this blockchain company to grow at 19.5% annually over the next five years.

One stock is being sold, one is moving from Strong Buy to Buy and there’s price action on several others.

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.