Issues
The market’s main trends remain up, and thus I remain bullish, while continuing to remind you that a balanced portfolio with attention to risk management is always smart.
Current Market OutlookEver since the mini-blowoff we saw in growth stocks in mid June, the market has been choppy, narrow and tough to maneuver, with many individual stocks going nowhere and a handful of leaders flashing abnormal intermediate-term action. But the character of the market seems to have changed during the past couple of weeks—the day-to-day rotation is gone, leading growth stocks have generally resumed their advances and the major indexes have moved to new highs. It’s still not 1999 out there, of course, and a big factor will be how the market reacts once big investors return from the beach next week. But there’s no question the evidence continues to improve, so we’re bumping up our Market Monitor to a level 8 (out of 10).
This week’s list has a bunch of good setups and great breakouts from growth-oriented stocks. Our Top Pick is Pure Storage (PSTG), which looks like it has recovered from the choppy action of the past few quarters.
| Stock Name | Price | ||
|---|---|---|---|
| Autodesk (ADSK) | 229.00 | ||
| DocuSign (DOCU) | 107.98 | ||
| Horizon Therapeutics (HZNP) | 49.89 | ||
| Nordstrom Inc (JWN) | 60.72 | ||
| Novocure (NVCR) | 0.00 | ||
| PetIQ (PETQ) | 30.82 | ||
| Pure Storage (PSTG) | 25.64 | ||
| SailPoint Technologies (SAIL) | 31.60 | ||
| Splunk (SPLK) | 207.67 | ||
| Williams-Sonoma (WSM) | 64.96 |
Things are looking up for emerging market equities. They’re not fully healthy, yet, but there has been definite improvement since the August 16 low. In today’s issue, I have some thoughts about whether or not this is a bottom in emerging markets, and how we will know one when it appears. I also have an intriguing new IPO for you to consider.
The market’s main trends remain up, and thus I remain bullish. In fact, I think the challenging action of the past few weeks has cleared the air a bit and set the stage for a renewed advance.
Current Market OutlookNot much has changed with the market’s tenor during the past week. The major trends are still positive, but not powerful, with many indexes not making much headway during the past two months. And for individual stocks, again, there’s more good than bad, but the advance is narrow and news driven, and we’re seeing more buying of defensive stocks. Overall, we’re still more positive than not because most of the evidence favors the bull side—and it’s worth noting that it wouldn’t take more than a couple of good days to get all the major indexes to all-time highs! But we also think it’s a good idea to go slow, look for solid entry points and, of course, honor your stops. We’re keeping our Market Monitor at a level 7.
This week’s list has a nice mix of solid stories from a few different industries. Our Top Pick is a stock that’s been a leader all year—Coupa Software (COUP), which has tightened up after a couple of months of consolidation. Start small and see what comes on earnings early next month.
| Stock Name | Price | ||
|---|---|---|---|
| CenturyLink (CTL) | 22.88 | ||
| Chipotle Mexican Grill (CMG) | 773.32 | ||
| Coupa Software (COUP) | 262.20 | ||
| Dexcom (DXCM) | 421.36 | ||
| Five9 (FIVN) | 78.35 | ||
| The Flowserve Corporation (FLS) | 54.70 | ||
| Ligand Pharmaceuticals (LGND) | 267.14 | ||
| Sendgrid (SEND) | 33.32 | ||
| Trade Desk (TTD) | 468.02 | ||
| Trex Company (TREX) | 117.56 |
The market is positive, but it’s not powerful, with a generally choppy, narrow and rotational environment in recent weeks. Even so, we’re encouraged by the action in some growth stocks, so after getting knocked out of a few names during earnings season, we’ve begun to put some money back to work.
The market’s main trends remain up, and thus I remain bullish. But there are some serious crosscurrents out there making investing a bit more challenging.
Our Spotlight Stock, a company that is taking the market of used cars to places that no one expected. The growth of the company is tremendous! In my Feature article, I report on the company’s stunning second quarter, as well as the catalysts keeping this market growing at significant rates.
Updates
The market rolls sideways amidst a slew of conflicting forces.
The S&P 500 has bounced around and is at the same level it was in the middle of May. The primary culprit is technology. That sector has been in a funk. The S&P 500 is hard-pressed to generate any lasting traction while this massive sector, accounting for over 40% of the index, flounders.
The S&P 500 has bounced around and is at the same level it was in the middle of May. The primary culprit is technology. That sector has been in a funk. The S&P 500 is hard-pressed to generate any lasting traction while this massive sector, accounting for over 40% of the index, flounders.
The market has gone sideways since May. It seems to be deciding what to do.
It’s encouraging that the resumption of hostilities with Iran has not sent the market lower. It’s also positive that oil prices aren’t rising back to the $100 level earlier in the war, although prices have risen. It’s also another earnings season and analysts expect a big one.
It’s encouraging that the resumption of hostilities with Iran has not sent the market lower. It’s also positive that oil prices aren’t rising back to the $100 level earlier in the war, although prices have risen. It’s also another earnings season and analysts expect a big one.
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.
Alerts
This tele-health company’s shares were recently initiated as ‘Outperform’ at Robert W. Baird, and six analysts have raised their earnings forecasts for the company in the past 30 days.
Today’s bulletin describes a management change at one of our stocks and bullish price movements, especially among integrated oil stocks.
This infrastructure company beat earnings estimates by $0.10 in the latest quarter. Ten analysts have raised their forecasts for both this year and next in the past 30 days.
The top five holdings of this 3-star-rated fund are Credit Suisse Group AG (CSGKF, 4.72% of assets); CNH Industrial NV (CNHI, 4.71%); Lloyds Banking Group PLC (LLDTF.L, 4.68%); Allianz SE (ALIZF.DE, 4.50%) and Bank of America Corporation (BAC, 4.44%).
This is just a quick note to let you know that LATAM Airlines Group has changed its trading symbol. The old symbol was LFL. The new one is LTM.
This medical tech company beat analysts’ earnings estimates by $0.22 last quarter. The company is expected to grow at double-digit rates for the next five years.
Here’s a comprehensive analysis of one of our holding’s Q1 earnings and some very interesting commentary from management regarding something I speculated about back in mid-January.
The top five holdings of this fund are Amazon.com Inc (AMZN, 2.96% of assets); Alphabet Inc C (GOOG, 2.31%); Tesla Inc (TSLA, 1.89%); SM Investments Corp (SVTMF, 1.63%) and Roper Technologies Inc (ROP, 1.49%).
One of our stocks reported Q1 results this morning that came in better than expected. Even though the stock ran up 20% in the week leading up to the earnings report, shares blew through their prior all-time high following the report. Shares are trading between 10% and 15% higher at mid-day today, which pegs our current gain at 30% to 35%.
We have non-urgent news and price action today: a few trading ideas, and a possible new CEO.
Taiwan Semiconductor (TSM) reached its Minimum Sell Price of 35.69 today. First-quarter sales and earnings were strong, which sent the stock higher. Now is a good time to take profits.
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.