The markets were doing just fine until Trump decided to stir up the Chinese tariff pot again. Employment continues to be healthy; the housing market remains strong and consumer and advisor sentiment is bullish. We’ll just have to see how this plays out, but I imagine it will be a flash-in-the-pan situation, lots of talk and probably little action.

Meanwhile, our contributors are long-term bullish and short-term cautious, as you’ll see in our Market Views section.

The stock market isn’t done rising. Nevertheless, it’s certainly okay to begin accumulating cash with which to buy low during the next stock market correction. The way I personally handle that is when I sell a stock, I put half of the proceeds into my brokerage account’s money market fund, and I buy shares of stock with the other half. In that manner, I get to participate in the market’s bull run while also “saving for a rainy day”. The best antidote to a stock market correction is having money available to buy low!

The market remains in good health, and all Cabot’s market timing indicators are positive, telling us the odds are that the market will be higher in the months ahead.
For today’s recommendation, I have a well-known dividend-paying mega-cap that has a very good chance of providing good capital gains in the months ahead, thanks to a landmark deal with Apple.
As for the current portfolio, overall, our holdings are performing quite well, with many hitting new highs in recent weeks. The portfolio is now full, but I have no sell recommendations. Details in the issue.

Current Market Outlook


Out-of-the-blue tariff threats emerged over the weekend, which roiled markets overnight and led to the usual spate of predictions as to what comes next in the U.S.-China trade saga. But when things get volatile, it’s even more important to simply stick with the facts and not get caught up in the guesses of what may come. Today, while the major indexes were down, they held well above support, which keeps the intermediate-term trend pointed up. And leading stocks fared even better, with many actually finishing up after horrid opens. Of course, it’s always possible that this is the start of a more meaningful pullback/correction, and if the uptrend is cracked, we’ll take a more cautious stance. But so far, the facts remain bullish, so you should remain heavily invested.

This week’s list is relative mixed, with a wide variety of stocks, sectors and growth stories represented. Our Top Pick is Inphi (INPH), a smaller chip and networking firm that looks to be a big beneficiary of the new networking boom.

Stock Name	Price	Buy Range	Loss Limit
Abercrombie & Fitch (ANF)	15.37	28-29.5	25.5-26.5
Coupa Software (COUP)	262.20	102-105	92-94
Enphase Energy (ENPH)	46.70	12.5-13.5	10.2-10.9
Exact Sciences (EXAS)	116.91	101-105	90-93
Harris Corp. (HRS)	198.60	174-179	161-164
Inphi (IPHI)	120.16	48-51	43-45.5
Lattice Semi (LSCC)	23.92	13.5-14.5	12-12.6
LPL Financial Holdings (LPLA)	85.22	80.5-84	73-75
MercadoLibre, Inc. (MELI)	980.83	550-575	475-495
Strategic Education, Inc. (STRA)	182.36	158-164	144-148

We all want to find those rare gems that are disrupting big markets with new solutions.
Today’s company may be one such opportunity. It’s relatively unknown and has a software platform that can address $45 billion in annual enterprise spending right now. That’s a big pond.
It’s a story about big data, digital transformation and business intelligence (BI). These are more than buzzwords. They’re what every company in the digital age needs. And this little guy can give it to them.

While emerging markets stocks have been mostly going sideways, there are always opportunities to find stocks on the upswing or high quality companies that have pulled back but present “catch up” potential.

Our new recommendation is from the latter group and is a name most members will know well.

For turnaround investors, insider stock purchases can provide important clues that a recovery may be ahead. These “insider” trades can indicate that those with the best knowledge of a company believe it will do better in the future. This can be a sign that “outsiders” should consider buying it, too.

In this issue, we dive into seven companies with these appealing traits.

The market remains in fine health, with many of our stocks hitting new highs and a slew of earnings reports providing reassurance that the good times are not over yet.
For today’s recommendation, we have another financial stock to replace the one that was sold profitably last week. It’s a strong sector, with no end to the strength in sight.
As for the current portfolio, overall, our holdings are performing well. But we have one sell, an emerging market stock that’s gone the wrong way and presented us with a small loss. Details in the issue.

Current Market Outlook


The ping pong environment we referenced on this page last Monday continued last week, with growth stocks bouncing back from a ragged prior week, while some of the recently-strong cyclical groups took a breather. We expect more under-the-surface volatility going forward, mostly due to earnings season, which is now moving ahead at a breakneck pace; so far, there have been a few potholes, but many stocks have reacted well to their reports. All in all, we remain mostly bullish, but two pieces of advice: First, don’t forget to book some partial profits when you have them, and second, be sure to keep your feet on the ground and look for advantageous entry points. We’ll keep our Market Monitor where it is as we see how leaders react to earnings.

This week’s list is heavier on emerging market and retail stocks than usual, which could be a clue to future leadership. Our Top Pick is ServiceNow (NOW), a blue chip-ish cloud software firm that decisively broke out of a tight launching pad on earnings next week. Try to buy on dips.

Stock Name	Price	Buy Range	Loss Limit
GDS Holdings Limited (GDS)	80.15	37-39	34-35
Huazhu Group (HTHT)	30.89	41.5-43.5	37.5-39
Ollie’s Bargain Outlet (OLLI)	103.94	93.5-97	85.5-87.5
Pilgrims Pride (PPC)	25.52	25-26.5	22-23
Sea Limited (SE)	132.86	24.5-26	21.5-22.5
ServiceNow (NOW)	341.86	263-273	237-244
Sinclair Broadcasting (SBGI)	54.14	42-44	39-40.5
Ulta Beauty (ULTA)	331.95	345-355	320-325
VeriSign (VRSN)	190.71	191-196	178-181
Workday (WDAY)	194.88	200-206	185-188

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 miner beat analysts’ estimates by $0.05 last quarter and in the last 30 days, 10 analysts have increase their EPS estimates for this year.

The recently-rumored merger between semiconductor companies Marvell Technology Group (MRVL – yield 1.2%) and Cavium (CAVM) was announced this morning.

Cummins, which makes engines for trucks, heavy machinery and other industrial and transport applications, fell 4.6% on Friday after Tesla unveiled its new electric semi-truck, increasing competition in the long-haul trucking market. Cummins also held an analyst day on Friday, but apparently failed to impress.

This wood products company beat analysts’ estimates by $0.12 last quarter, and four analysts have increased their EPS forecasts for the company in the past 30 days.

Eight analysts are forecasting a rise in EPS for this outsourcing company.

Eight analysts have raised their EPS forecasts for this outdoor apparel company in the past 30 days.

The top five holdings of this fund are Adidas AG (ADDDF.DE, 5.39% of assets); Adobe Systems Inc (ADBE, 5.34%); CBOE Global Markets Inc (CBOE, 5.08%); Caterpillar Inc (CAT, 4.90%) and Amgen Inc (AMGN, 4.88%).

One of our stocks reported a solid quarter this week that prompted a fresh wave of buying and drove the stock up over 10% yesterday.

Three analysts have increased their EPS estimates in the past 30 days for this spin-off.

Rumors are racing about that Hasbro (HAS) might attempt to purchase Mattel (MAT). There are absolutely no details to discuss at this time. Considering that these are the two largest U.S. toy companies, I would anticipate a serious amount of antitrust drama surrounding a potential merger.

Although this gold miner is experiencing operations difficulties at one of its locations, Wall Street is bullish, forecasting growth of more than 34% annually over the next five years.

Although competition is beginning to cut into this electric vehicle’s numbers, the market in China continues to be strong, with new energy vehicle (NEV) production forecast at 700,000 vehicles this year.

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.