Issues
The month of May brought a much-needed market correction; will June bring the return of the uptrend? Technically, it’s certainly possible, and fundamentally, too, given that global events probably won’t unfold as negatively as investors now fear.
Current Market OutlookSometimes the simplest analysis is the best, and that continues to be the case for the current market—the intermediate-term trend is down for the major indexes and most stocks (we even saw the resilient software sector finally come under pressure today), so until that changes, you should remain cautious, holding a good-sized chunk of cash, limiting new buying and honoring stops. To be fair, there are many signs that the market might be close to a bounce—emotions are beginning to run high, many measures of breadth and sentiment are “oversold” and we still see a fair number of stocks building normal launching pads—but until the buyers actually step up to the plate, those don’t really mean much. (Indeed, today was the Nasdaq’s fifth heavy-volume down day of the past seven sessions.) Our Market Monitor falls to 4 this week.
None of that, though, tells you to stick your head in the sand. This week’s list is again full of solid charts and stories from a variety of sectors. Our Top Pick is Guardant Health (GH), which isn’t tearing up the charts but is in the middle of a nice, tight consolidation.
| Stock Name | Price | ||
|---|---|---|---|
| Advanced Micro Devices (AMD) | 82.24 | ||
| Anaplan (PLAN) | 47.52 | ||
| Beyond Meat (BYND) | 132.87 | ||
| Dynamic Materials (BOOM) | 60.21 | ||
| Guardant Health (GH) | 88.34 | ||
| Heico (HEI) | 134.84 | ||
| Novocure (NVCR) | 0.00 | ||
| Paycom Software (PAYC) | 0.00 | ||
| Smartsheet (SMAR) | 44.12 | ||
| Snap Inc. (SNAP) | 16.68 |
While some restaurant chains regularly make adjustments and continue to prosper, others correct their mistakes in time. And some recognize their mistakes too late..
However, several casual dining restaurant chains that have lost their way have turnaround appeal. In this issue, we take a look at five.
However, several casual dining restaurant chains that have lost their way have turnaround appeal. In this issue, we take a look at five.
The main trend remains up, in both the broad market and the cannabis sector in particular, but in the intermediate-term, we are now in a correction, and thus a little more caution is advised.
In fact, in today’s issue, I’m raising cash by selling portions of the portfolio’s two biggest investments, and then buying some more of one of the portfolio’s “safest” investments, if anything in this industry can be called safe.
In fact, in today’s issue, I’m raising cash by selling portions of the portfolio’s two biggest investments, and then buying some more of one of the portfolio’s “safest” investments, if anything in this industry can be called safe.
It has been a busy week in emerging and global markets.
The MSCI Emerging Markets ETF (EEM) remains in a negative position, just below 20-day and 50-day moving averages. Our portfolio has a 35% cash position and maintains 10% allocation to an ETF that moves opposite the EEM.
The MSCI Emerging Markets ETF (EEM) remains in a negative position, just below 20-day and 50-day moving averages. Our portfolio has a 35% cash position and maintains 10% allocation to an ETF that moves opposite the EEM.
The world is changing. That’s nothing new. But in terms of technology it’s changing at a faster pace than ever before. There’s a new term you’ve probably seen floating around the news, it’s called 5G. It represents a change so profound that as investors we need to understand it.
Current Market OutlookLast week was the third straight down week for the major indexes. More importantly to us, all remain clearly below their 50-day moving average. That keeps the intermediate-term trend pointed down, which combined with some soggy action from key groups (oils and chip stocks look like death) is a good reason to remain relatively cautious. Of course, not all is bleak—the longer-term evidence is still positive, and most leading stocks are in decent shape (though many did take on water last week). Overall, then, the song remains the same: We advise holding most of your strong, profitable stocks, but also holding a good-sized chunk of cash and being very choosy on the buy side. The onus remains on the bulls to retake control—until then, step lightly.
This week’s list has another strong group of stocks; a nibble here or there is fine, or simply put your favorites on your watch list. Our Top Pick is Array Biopharma (ARRY), which emerged on big volume last week, and it helps that many biotech names are acting resiliently.
| Stock Name | Price | ||
|---|---|---|---|
| Array Biopharma (ARRY) | 46.35 | ||
| Ascendis Pharma (ASND) | 119.09 | ||
| Copart (CPRT) | 74.80 | ||
| GW Pharmaceuticals (GWPH) | 174.52 | ||
| Legg Mason Inc. (LM) | 37.44 | ||
| PulteGroup (PHM) | 45.93 | ||
| RingCentral (RNG) | 238.73 | ||
| Sea Limited (SE) | 132.86 | ||
| Viasat (VSAT) | 81.22 | ||
| Wix.com (WIX) | 302.53 |
Short-term, the market remains under pressure, and this corrective phase could easily go longer (I don’t sense enough pain yet), but long-term, the market’s main trend remains up, so I continue to recommend that you be heavily invested in a diversified portfolio of stocks that are performing well.
Today’s recommendation is a recent IPO, but it’s not Uber or Pinterest or any of the big popular names. I think you’ll like it, but be careful; volatility is to be expected.
As for the portfolio’s current holdings, several are hitting new highs—and none are performing so badly that they deserve to be sold. So this week we’ll stand pat. Details in the issue.
Today’s recommendation is a recent IPO, but it’s not Uber or Pinterest or any of the big popular names. I think you’ll like it, but be careful; volatility is to be expected.
As for the portfolio’s current holdings, several are hitting new highs—and none are performing so badly that they deserve to be sold. So this week we’ll stand pat. Details in the issue.
Updates
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.
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.
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.
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 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.
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.
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.
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.
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 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.
Alerts
The top five sectors of this emerging markets fund are: Technology (29.77% of assets); Financial Services (18.52%), Consumer Cyclical (15.94%), Consumer Defensive (9.35%) and Industrials (7.40%).
The top five holdings of this conservative income fund are Tmcc Mstr 1wkl+35 12/06/17 P/P(1.33% of assets); Sumitomo Mitsui Bkg FRN (1.07%); Australia & New Zeala Bkg FRN (1.00%); Bk Amer FRN (0.94%) and Ing Bk Nv 144A FRN (0.93%).
There was significant share price action in two of out stocks today.
Six analysts have increased their earnings forecast for this energy company in the past 30 days.
This medical equipment company beat analysts’ estimates by $0.19 last quarter, and Wall Street is forecasting an annual growth rate of more than 27% for the company for the next five years.
One of our stocks reported a third-quarter earnings beat, and steel stocks are up.
These two ideas are a bet on a better year for natural gas—whether you are a conservative or aggressive trader.
Our first idea is an auto parts supplier that pummeled analysts’ earnings estimates by $0.09 last quarter. We also include two sell recommendations today.
Our first idea is an auto parts supplier that pummeled analysts’ earnings estimates by $0.09 last quarter. We also include two sell recommendations today.
Our first idea is an auto parts supplier that pummeled analysts’ earnings estimates by $0.09 last quarter. We also include two sell recommendations today.
Tonight, we’re selling one stock that broke down today, and booking partial profits in another. We’re also putting one stock on Hold because it’s been correcting sharply, though it’s still in an overall uptrend.
Three stocks move from Strong Buy to Hold, and two stocks are good buys here.
Portfolios
Strategy
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.