The economy is humming, interest rates are falling, and stocks are rising. All in all, therefore, conditions are great, and our diversified portfolio—currently weighted toward lower-risk dividend-payers—is doing well.

This week we sell one growth stock, downgrade two portfolio stocks to hold—because they’ve done so well—and add a new growth stock, a high-tech communications company whose name harkens back to an earlier era.

Details in the issue.

Current Market Outlook


The market had another decent week, with the major indexes finishing above key moving averages, though all are still stuck in multi-month ranges. But the calm action hid another round of vicious rotation beneath the surface, with most growth-oriented stocks at least taking on water, if not unraveling altogether. With few stocks in sustained uptrends and the major indexes effectively trending sideways, we continue to advise a mostly cautious stance, with small new positions and plenty of cash on the sideline. That said, you shouldn’t stick your head in the sand, either—we continue to see a good number of setups out there, and we believe a lot will come down to earnings season. A spate of breakouts would be encouraging, but as usual, we have to see it first.

This week’s list is mostly full of the steady growers and special situations that the market is favoring these days. Our Top Pick is Tempur Sealy (TPX), which looks like a solid turnaround situation, with surprisingly big growth numbers to boot.

Stock Name	Price	Buy Range	Loss Limit
Arconic (ARNC)	17.00	26-27	24-24.5
Cabot Microelectronics (CCMP)	156.17	143-148	129-131
Fastenal (FAST)	37.08	35-36	32-32.5
Kansas City Southern (KSU)	176.54	140-144	129-131
Nike (NKE)	89.77	92.5-94.5	85-86
Taiwan Semiconductor (TSM)	78.41	48-50	44-45
TAL Education (TAL)	50.49	38-39.5	34.5-36
Target (TGT)	124.77	109-112	100-102
Tempur Sealy (TPX)	85.53	79-82	71.5-73.5
TJX Co. (TJX)	59.24	58-60	53.5-54.5

Last week’s U.S.-China trade truce fell flat but the tone of emerging market and international stocks remains positive. The EEM began 2019 at 40 and moved nicely to 44 in late spring before coming back to 39 in late summer. Since then, EEM has been in a choppy uptrend to reach 42. Today we move south of the border for a new recommendation in a strong uptrend and way off its high.

October markets are living up to their reputations! As I said in my recently published book, Make Money Buying and Selling Stocks, “October is a Scary Month (many market crashes have occurred in October—Panic of 1907, Black Tuesday (1929), Black Thursday (1929), Black Monday (1929) and Black Monday (1987). The truth: October is on record for the most volatile month. According to CFRA Research from 1950 to present day, “the S&P 500 on average registers more daily moves of at least 1% in October than in any other month.” On the flip side, however, going back to 1950, the S&P 500 has averaged a gain of 0.7% in October, according to The Stock Trader’s Almanac.” And this October has certainly been volatile; yet, in terms of market action, we are about even for the last 30 days.

The market is looking a little healthier, but it’s too early to call the all-clear yet. Still, many of our stocks are looking better, with several hitting new highs in recent days.
This week’s recommendation is an oil-patch giant that pays a good dividend, is undervalued, and is going up—what’s not to like?

Current Market Outlook


Last Friday’s surge higher by the broad market was a powerful sign that the lack of progress by growth stocks in recent months might be over, and for that reason alone, we are raising our market gauge one notch above neutral to the 6 level. But until we see true follow-through, and numerous growth stocks hitting new highs, we can’t be sure. In the meantime, however, there are still plenty of individual stocks acting well, with the potential to make big moves if the broad market cooperates.

Our Top Pick this week is the world leader in electronic signature technology, DocuSign (DOCU), which is making it easier to do business securely as the world turns increasingly digital.

Stock Name	Price	Buy Range	Loss Limit
Aaron’s (AAN)	74.35	66-69	59-61
ASML Holding (ASML)	350.01	253-260	228-232
Chipotle Mexican Grill (CMG)	773.32	795-825	730-745
Crocs (CROX)	0.00	29.5-32.3	25-26
DocuSign (DOCU)	107.98	64-66.5	56-57.5
Lululemon Athletica (LULU)	304.69	200-202	190-192
Quanta Services (PWR)	91.45	37-39	34-35
Saia Inc. (SAIA)	129.19	93-97	85-87
SolarEdge Technologies Inc. (SEDG)	124.37	87-89.5	78-80
Trex Company (TREX)	117.56	87-90	79-81

The market remains all over the place, with news- and rumor-driven action pushing the indexes and individual stocks around every day. Our biggest thought remains that, while there’s plenty of evidence that tells us the next major move is probably up, the current environment remains extremely choppy with few stocks hitting new highs and little real money being made. Thus, we remain cautious, holding plenty of cash and going slow on the buy side—although we’re always keeping our eyes open for a sustained turn higher. In the Model Portfolio, we’re a bit more than half in cash and are building our watch list for the next advance.

The market is no longer as healthy as it was, but the bull market is not dead, either, just going through a change of character—a change that helps some of our stocks and hurts others. That’s investing!

As for this week’s stock, it’s a name you may not have heard of yet—it’s young—but lots of Chinese have, as it serves the mass market.

And in the portfolio, there are two changes—one simple sell and one “retirement” of a stock that has achieved its short-term potential but that might still be kept around for the long term.

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.

At this point it seems prudent to trim three underperforming positions that haven’t been working well for us—especially since all three are at, or just below, the pivotal points I’ve been monitoring for several weeks.

The shares of this brokerage company were recently upgraded by Keefe Bruyette & Woods, to ‘Outperform’, and by Barclays to ‘Overweight’.

The market and especially growth stocks fell sharply today, with the Dow losing 345 points and the Nasdaq falling 212 points, giving back all of yesterday’s bounce.

Wall Street expects this gaming company to grow at more than 15% annually, over the next five years.

Markets ended last week on a sour note as the U.S. and China imposed tit-for-tat tariffs and Facebook continued to drag tech stocks lower. The major indexes all declined more than 5% for the week, their worst weekly performance in over two years. I’m moving two of our most affected stocks to Hold today.

This insurance company beat analysts’ estimates by $0.05 last quarter.

In light of all this week’s “Trump trade war” headlines, let’s review the U.S.-China trade news so that you can quickly grasp the facts of the situation. It’s also important to understand that as much as the media might try to portray announcements about trade problems as sudden, whimsical and dangerous, they are in fact long-studied, methodical, and inclusive of a huge variety of government, industry, academic and citizen input.

The market was crushed yesterday as fears of a trade war with China picked up. At the close, the Dow had lost 724 points while the Nasdaq had fallen 179 points.

This animal health company was just recommended by Zack’s, who cited its earnings growth and positive estimate revisions.

One stock reports second quarter results and three more are rising this week.

This aerospace services company beat analysts’ earnings estimates by $.20 per share last quarter, and nine analysts have increased their forecasts for the company in the past 30 days.

If you own shares of this stock in our portfolio you were very pleased when shares rallied 28% yesterday.

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.