The market’s decline has intensified in recent days, driving the Nasdaq back to its October low, hammering most growth stocks and keeping our trend-following indicators firmly bearish. There are a couple of encouraging signs among secondary measures, but until the buyers show up, we advise a defensive stance.

Yesterday, we were forced out of two of our three remaining stocks as they plunged through support. That leaves us with just one position remaining and a huge cash position near 90%. We could put a bit of money to work if the market stabilizes, but tonight we’re sitting tight.

In tonight’s issue, we dive into some sentiment measures which are offering a ray of hope, expand our watch list and write about one type of investment that could be a good way to get a foot in the door of the next uptrend.

Current Market Outlook


While the major indexes remain above their October lows and a good number of recent earnings winners (many of which have been featured in Top Ten) are still holding up well, the fact is that the intermediate-term trend for the market remains down and, even if you own the best stocks, no money is being made. Thus, we continue to recommend a defensive stance—preserving capital and confidence will pay off in spades when the next sustained advance gets underway. On a scheduling note, there will be no Friday update this week (holiday), and there is no issue next week (one of our two weeks off all year). But I do plan to send a brief update Monday, November 26 just to keep in touch.

Back to this week’s list, we have another batch of resilient stocks, which are providing a ray of light. Our Top Pick is Canada Goose (GOOS), which we think can be an institutional favorite once this market downturn ends.

Stock Name	Price	Buy Range	Loss Limit
Acacia Communications (ACIA)	51.83	41-43	37-38
Amedisys (AMED)	174.06	115-120	105-108
Canada Goose Holdings (GOOS)	46.21	63-67	55-57
Crocs (CROX)	0.00	24.5-26	22.5-23.5
Elastic (ESTC)	86.17	65-69	58-60
Planet Fitness (PLNT)	0.00	49.5-51.5	47-45.5
Repligen (RGEN)	91.34	60-64	56-58
Tableau Software (DATA)	126.42	108.5-110.5	99-101
TripAdvisor (TRIP)	55.14	57-60	52-54
Zebra Technologies (ZBRA)	154.94	167-172	158-161

There isn’t a ton of good news in this new issue, but there are definite signs that emerging market stocks are making an effort at putting in a bottom. Emerging market stocks (as reflected in the MSCI EM ETF) are above their 25-day moving average and have put a little daylight between themselves and their late-October low. We’re also seeing a few stocks attracting flashes of buying interest, which is also a hopeful sign.

While the market has certainly been choppy, long-term sentiment, as you’ll see in our Advisor Sentiment Barometer skews bullish. But short-term—as our contributors note in our Market Views—it will pay to be cautious, so make sure you have your price targets and stop losses firmly set.

Here in mid-November, several themes are foremost in my mind. First is rotation; tech stocks are out and defense is in. Also in, as always, are underappreciated stocks, both big and small. Second is the traditional year-end selling of losers (for tax purposes) and year-end buying of winners (for window dressing purposes.) And third is the developing strength in international markets, which have been under pressure far longer than U.S. market and are thus riper to return to their uptrends.

Current Market Outlook


As expected, we’re seeing a ton of day-to-day volatility in the market—last week the Nasdaq spiked higher by nearly 300 points in less than three days, only to give it all back since Thursday. But net-net, we really haven’t seen any change in the market’s picture, as the intermediate-term trend is pointed down for most indexes, sectors and individual stocks. The good news is that, as expected, earnings season has revealed a nice crop of potential leaders that are acting resiliently—this week’s list has a bunch of them to consider. But remember that, in a weak market, good-looking stocks can go bad in a hurry, which is why we advise holding a bunch of cash, and if you buy, you should keep positions very small and look to enter on weakness. We’re keeping our Market Monitor at a level 4 in today’s issue.

This week’s list is chock full of earnings winners, which, encouragingly, are generally holding up well despite the market’s latest slide. Our Top Pick is Etsy (ETSY), whose growth is picking up steam and stock is acting great.

Stock Name	Price	Buy Range	Loss Limit
Alteryx (AYX)	132.78	53-56	47.5-49.5
BioTelemetry Inc. (BEAT)	58.58	59.5-62.5	54-56
CyberArk (CYBR)	111.74	73-75	67.5-69.5
Dexcom (DXCM)	421.36	138-142	127-130
Etsy (ETSY)	112.97	49-51	43-45
Genomic Health (GHDX)	64.42	77-80	67-69
Horizon Therapeutics (HZNP)	49.89	20.5-21.5	19-19.5
The Mosaic Company (MOS)	29.22	34-36	31.5-32.5
Twilio (TWLO)	183.39	81-85	73-75
Ulta Beauty (ULTA)	331.95	298-305	278-280

Whew! I’m glad to see the back of October, aren’t you? Last month lived up to its usual market volatility, with several big down days on the Dow Jones Industrial Average. However, things are looking up, and with this morning’s futures, it looks like investors appreciate the coming gridlock in Congress, following yesterday’s mid-term elections.

The market advanced nicely today, continuing the bounce it’s enjoyed during the past week and a half. It’s encouraging action, and we’re not opposed to doing a little buying here or there given our large (76%) cash position.

That said, our trend-following indicators are still negative, telling us that, despite the nice rally, we need to see continued positive action before starting a major new buying spree. Right now, we’re mostly focused on fine-tuning our watch list, which we’re not having trouble doing given the many strong earnings gaps seen recently.

In tonight’s issue, we talk a bit about how markets usually bottom after a big decline, something that’s good to keep in the back of your mind. And we spend a lot of space discussing potential leaders of the next advance.

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.

Our second recommendation is profit-taking on a previous pick.

Updates on three of our stocks, including one rating change. Also, three excellent stocks to buy now.

While this Fidelity fund falls into the large-cap growth category, the fund’s mandate is quite different from that of most of its peers.

Updates on Vertex Pharmaceuticals (VRTX) following the July 18 breakthrough drug announcement, and Chipotle Mexican Grill (CMG), which is in the news again due to the closing of a Virginia restaurant location.

This optical company was recently added to the Russell 2000 Microcap/Small Cap Index, which should invite new institutional interest in the shares.

Crista comments on Goldman Sachs’ and Bank of America’s strong second quarter earnings beats this morning, plus provides an earnings report calendar for our stocks through July.

Along with other top management changes, this biotech just announced a new CFO today.

Special updates on two of our stocks that are good Buys here.

Analysts are forecasting double-digit growth for this new Top Pick.

This uranium company has several catalysts in store, and analysts are projecting double-digit growth this year.

Today we have five buy ideas including two ratings changes.

This pharmaceutical company is forecast to continue growing at double-digit rates over the next five years.

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.