The market has been ripping higher with broader participation from sectors that weren’t doing much a couple months ago. That’s the good news. And it’s showing up in the charts with the Small Cap Index at multi-month highs (but well below all-time highs). IPOs are starting to find their legs too. The not-so-good news is that the market is looking a little stretched, which could mean a pause or pullback is coming sooner rather than later. But, the market has a way of doing the unpredictable and with so many investors thinking it’s time for break we could see just the opposite. This month we try to play both sides of the ball by spreading things around in different sectors and across market caps. There’s some IPOs, some high growth software and MedTech ideas, and another growth + value name. They all have their own qualities and stand out to me for different reasons right now.

Last year, there were at least 7.9 billion records—including credit card numbers, home addresses, phone numbers and other highly sensitive information—that were compromised by computer hacks, mainly through invasions of business networks.

Current Market Outlook


The big-cap indexes remain in rarified air, as they continue to levitate and the sellers refuse to put up a fight. Even more encouraging is that many stocks that took the prior few weeks off (generally building tight ranges) have resumed their advances, a good sign. That said, the upmove has become a bit more selective (small- and mid-cap indexes haven’t participated lately) and numerous yellow flags among secondary indicators are still in place. All of that is a longwinded way of saying that not much has really changed—it’s a strong bull market that should go higher down the road, but the risk of near-term potholes is elevated. Thus, you should remain bullish and continue to hold most of your strong performers, but picking your spots on the buy side makes sense as well.

This week’s list includes a bunch of names that have shown excellent strength after resting for a few weeks—or in some cases, months. Our Top Pick is blue chip Salesforce.com (CRM), which has accelerated to new highs after a 15 months of base-building.

Stock Name	Price	Buy Range	Loss Limit
Aecom Technology (ACM)	0.00	45.5-47	42-43
Axsome Therapeutics (AXSM)	0.00	83-88	71-75
Dexcom (DXCM)	421.36	225-235	202-206
Dynatrace (DT)	36.59	27.5-29	24-25
Fortinet Inc. (FTNT)	137.53	112-115	103-105
Guess (GES)	0.00	21-22	19-19.5
JD.com (JD)	39.58	38-39.5	34.5-35.5
Qorvo (QRVO)	129.47	112-116	101-102
Salesforce.com (CRM)	0.00	178-182	164-167
Western Digital Corporation (WDC)	0.00	65-67	59-60

The broad market remains strong, and all Cabot’s market timing indicators are currently positive, so I remain optimistic that we’ll see higher prices in the month ahead and I continue to recommend that you remain heavily invested. However, it’s worth noting that the market is increasingly ripe for a pullback, and that a few of our super-strong stocks (LK and SPCE and TSLA) are also ripe for major pullbacks. In other words the market looks a bit overheated here.

Thus this week’s recommendation is a lower-risk, high-yielding chemical stock with very little downside potential. I think it will balance those higher-risk stocks nicely. Lastly, the addition of this stock means we have to sell one, and the victim this week is TopBuild (BLD).



Details in the issue.

As we head into 2020, emerging markets are at the top of the Cabot Global Stocks Explorer menu after developing a nice uptrend in the fourth quarter of 2019. In addition, they are cheap - trading at a substantial discount to U.S. markets on a valuation basis. Today’s new idea is at the sweet spot of several powerful trends in China and has delivered steady and substantial profits to shareholders over the past five years.

We enter 2020 in a tricky situation. It is very late in the recovery and bull market and the market is near an all time high. While the bull market is likely to last a while longer, this still isn’t a great place to be in general. However, while the overall market is expensive there are rare pockets of great value.

In this issue I highlight a shipping stock that has remained profitable and paid dividends every single quarter through an industry depression. That company is yielding a massive 9.6%. And industry conditions are improving. It may be 2020 in the overall market, but I found a place where it’s 2009 again.

Today’s featured stocks are those that I sense are most likely to rise this month. We’ll probably see near-term strength in energy companies, alongside rising oil prices; and insurance companies, as their fourth quarter results include capital gains from investment portfolio performance. Earnings season kicks off this month with banks reporting fourth quarter results. It’s not too late to sell the worst stock in your portfolio and replace it with shares of a high quality, growing company that has a bullish price chart.

Spot charter rates have begun to boom and most expect the good times to continue for many quarters if not longer—while Q3 results were still sour, this company’s stock moves on perception of the future, and it’s pretty much established now that 2020 will be a banner year (analysts see earnings of $3.61 per share!).

Current Market Outlook


Usually when the market is stretched and sentiment is complacent, the market latches onto a reason to retreat, and last week provided it, with the Middle East conflict offering an excuse for sellers to get active and buyers to pull in. The good news is, thus far, the retreat has been reasonable—the major indexes are still even above their 25-day lines, and few stocks have cracked key support or flashed any abnormal action. That said, we’re leaning toward the view that, Iran or not, the short-term is likely to remain tricky, with rotation, potholes and news-driven moves likely to be the norm for a while. Thus, we remain bullish, but continue to advise picking your spots—many stocks have etched nice month-long rest periods, though some others probably need time to consolidate.

This week’s list has a bunch of names that haven’t appeared in Top Ten for a long time (if ever). Our Top Pick is Alibaba (BABA), which has finally kicked back into gear after a long time in the wilderness. Try to buy on dips.

Stock Name	Price	Buy Range	Loss Limit
Alibaba (BABA)	254.81	208-216	192-196
Bilibili (BILI)	28.71	20.5-22	18.5-19.5
Coupa Software (COUP)	262.20	157.5-162.5	143-146
Eldorado Resorts (ERI)	0.00	56-58	51-52
Global Blood Therapeutics (GBT)	0.00	76.5-80	66.5-68.5
Lumentum (LITE)	87.00	76-79	69.5-71
SolarEdge Technologies Inc. (SEDG)	124.37	95-97.5	86-87.5
Tenet Healthcare (THC)	0.00	35.5-37	32.5-33.5
WPX Energy (WPX)	0.00	13.2-13.7	11.7-12.0
Scorpio Tankers (STNG)	0.00	37.5-39	33.5-34.5

The broad market remains strong, and all Cabot’s market timing indicators are currently positive, so I remain optimistic that we’ll see higher prices in the month ahead.

This week’s recommendation is a growth-oriented medical stock with great potential; it was originally recommended by Mike Cintolo last November and it’s currently hitting new highs.



And as for the current portfolio, most of our stocks look fine, but because I limit the portfolio to 20 stocks, one has to go—and it’s the weakest.



Details in the issue.

Price targets are standard practice on Wall Street. But sometimes, they can act as an artificial ceiling.

For example, say Truist sets a price target on an up-and-coming growth stock that’s 25% higher than its current share price. For a growth stock, a 25% return isn’t much. But then again, the stock could be a total flop, which is the natural boom-or-bust tradeoff growth investors must endure in trading off increased risk for massive upside. So, a price target on a growth stock seems almost like an unnecessary cap on a stock that has the potential to go through the roof.

WHAT TO DO NOW: Continue to trim your sails. In the Model Portfolio, we’ve been getting closer and closer to shore as growth funds and indexes are under pressure and AI stocks cascade lower. Tonight we’re going to further trim Marvell (MRVL) given its ugly action, selling a third of what we have left. That will leave the portfolio with a big 58% cash position. We could put some of that to work if growth names find support, but we want to see key growth measures firm up before buying.

After a brief pause last week, small caps are once again leading the pack.

Through Wednesday’s close, the S&P 600 Small Cap Index is up roughly 21% year to date, compared to gains of about 15% for the S&P 400 MidCap Index, 17% for the Nasdaq and 11% for the S&P 500.

Its earnings season again! That’s a good thing. Earnings just might save the day in an otherwise confusing and uncertain market.

The market is causing whiplash. The Iran peace deal changed things. Stocks held back by high oil prices, and the resulting higher inflation and interest rates, reignited as oil prices came back down after the peace deal. But hostilities with Iran have resumed.

The peace deal may be on hold again. But stocks are hanging in there so far.

The ceasefire with Iran is over and hostilities have resumed. That sounds like a bigger bummer than it’s been in the market so far. Falling oil prices enabled previously beleaguered stocks to soar higher again as the prognosis for inflation and interest rates simultaneously improved. But that rally is over if oil prices spike higher again.

It’s no surprise that summer often brings lower market volatility levels as Wall Street heads to the Hamptons and participation rates diminish.

Indeed, what we’re seeing right now has all the classic symptoms of a low-participation environment, with investor sentiment being remarkably muted. This can be seen across a number of sentiment indicators for several different markets, most of which are flashing decisively “neutral” signals.

The divide between value and growth stocks is widening, as the Nasdaq is now more than 5% off its highs after peaking in early June while the Vanguard Value Index ETF (VTV) is hovering near its late-June apex and is up 3% in the last month.

That can flip in an instant, of course, as we saw in April and May. But the bottom line is that value stocks have risen 15% year to date, compared to an 11% gain in the Nasdaq and a 9.5% boost in the S&P 500.

After a very strong run from the March lows, the market appears to be going through an uncomfortable but healthy rotation. Many of the biggest winners from the AI and semiconductor trade have come under pressure, while value stocks, equal-weight indexes and other areas that had lagged earlier in the year have held up much better.

Markets are facing more inflation as the Iran mess gets messier. Concerns over high AI capital spending are a cloud over a resilient market. On the bright side for our portfolio, however, International Business Machines (IBM) shares were up 7.4% this week following last week’s 8.9% gain. Sea Limited (SE) shares leapt 9.6% this week and are up about 20% over the past month. MercadoLibre (MELI) shares are up 11.6% over the last two weeks.

I remain bullish on stocks, but I am turning more cautious, winding down leverage, and letting some cash build up in my non-marginable accounts.

The reason is that spooky season lies just around the corner. September and October are typically the weakest months of the year. We also often see weakness in July and August, perhaps as investors get nervous about those looming difficult months.

After a very strong run since the March lows, the market appears to be going through a healthy, albeit somewhat uncomfortable, rotation.

The biggest winners from the AI and semiconductor trade are finally seeing some profit-taking, with Goldman Sachs (GS) noting that momentum stocks recently suffered their worst two-day decline since 2020. UBS (UBS) just said that the momentum factor is down roughly 20% from its June peak, marking the seventh-largest drawdown of the last decade and the fastest decline of that magnitude on record.

The S&P 500 was down in June after rising sharply in April and May. But that doesn’t tell the whole story.

Most stock sectors had a strong month in June. The four best-performing sectors and their returns over the last month include the following: health care (11.2%), financials (8.44%), industrials (6.87%), and utilities (6.64%). Information technology, which drove the S&P higher in April and May, is the worst-performing sector over the last month with a negative 8.75% return.

An earnings miss has made this wireless supplier a bargain, and analysts are projecting 15% annual growth for the company for the next five years.

I’m recommending the sale of two stocks today because they’ve gone up at a rapid pace that’s unsustainable. There is absolutely no bad news that’s driving this decision, and I am open to repurchasing both stocks in the future, especially if they have big price corrections.

Our second recommendation is a short on an auto parts retailer, as a result of so-so sales.

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.

A few Cabot Options Trader subscribers have asked me about ways to protect gains in their portfolios, so I thought I would write to everyone with a couple of strategies using options to hedge your portfolio.

A subscriber recently asked me if I keep a journal of my trades. Many traders keep journals so they can look back at their trades and evaluate what they did right and what they did wrong.

Want to know how the big institutional investors use options? Here is an example of how one trader spent $132 million on three technology stocks.

Options trading has its own vernacular. To know how to do it, you need to know what every options term means. Here are some of the basics.

Our Cabot Momentum 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 Momentum Trader features.