The market has been wild in recent days, giving investors very mixed messages—on one hand, many leading growth stocks have broken down, but on the other, the broad market is strengthening, with our Cabot Tides actually flashing a new green light. Given the crosscurrents, we’re taking things on a stock-by-stock basis, selling stocks that are cracking support and looking for new buys among fresh leadership.

The gathering at our Cabot Wealth Summit last month was lively, accompanied by markets exhibiting some pretty intense volatility. That was primarily due to the Chinese tariff issue, but with little net change. Our subscribers—as well as individual investors—continue to be bullish. The economy remains strong, but Fed watchers are calling for another 25 basis points rate cut at the September 17-18 meeting, due to the global outlook as a result of the U.S./China trade war.

And yet, the fundamentals look sound, and as you’ll see in our Market Views section, our contributors continue to be positive in their outlook.

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

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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.

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

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.

With war being one of the most dominant themes of the last four years, it stands to reason that investors should position their portfolios to account for this conspicuous (and unwelcome) trend.

And lest one be tempted to think that the warfare theme will diminish anytime soon, last week’s article by NPR deflates that illusion: It revealed that global military conflicts are at their highest level since WWII.

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.

This restaurant operator reported record results for 2017: 32.6% sales growth and EBITDA increase of 42.7%. The company also declared a special dividend of $0.04 per share, payable on March 12, 2018, to shareholders of record on February 27, 2018.

Updates on two of our stocks that reported earnings this week.

This software provider’s earnings estimates were just raised by 16 analysts.

Cronos Group is expected to be elevated today from the Nasdaq International Designation program (where it has traded as PRMCF) to the Nasdaq Global Market, where it will trade under the ticker symbol CRON. In Canada, it will continue to trade under the symbol MJM.

The recent rally has been enough to turn our Cabot Tides positive, as three of the five indexes we track are clearly above their 50-day lines. That’s certainly a positive and tells us to put some money back to work.

This Chinese retailer’s shares were recently upgraded by HSBC, to ‘Buy’ and Bernstein, to ‘Outperform’.

Seven analysts have increased their EPS forecasts for this infrastructure company in the past 30 days.

Two of our stocks reported earnings yesterday.

This $100 or so stock just announced a special dividend of $5—great return on investment for shareholders of record as of February 27.

Analysts expect this real estate marketing company to grow at a rate of more than 58% this year and 45% in 2019. Two companies have recently upgraded the shares: KeyBanc and Morgan Stanley, both to ‘Overweight’.

To be safe, I’m moving one of our stocks to Hold today after it dipped yesterday.

Coverage of the shares of this oil and natural gas company were just initiate by several brokerages: Deutsche Bank, to ‘Buy’; Baird, to ‘Outperform’; and Credit Suisse, to ‘Outperform’.

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.