Issues
The broad market has gotten jumpy again, but it’s no reason to panic. In today’s issue, we review why dividend stocks are better in downturns, add a conservative-aggressive stock to the Safe Income tier, and have earnings updates on all our stocks (four have already reported; the rest will over the next week.)
The long-term trend of the market remains up, but increasingly, it pays to be nimble. For today’s recommendation, that means jumping on the start of a new uptrend after an excellent earnings report.
Current Market OutlookThe market backed off late last week, but the overall picture hasn’t changed much—following a successful retest of the February lows, the major indexes are in a solid rally attempt, but that rally has yet to turn the intermediate-term trend up, either for the indexes or for the majority of leading stocks. There are many encouraging signs, and if the market rallies from here, the trend could turn up later this week; we’re ready and waiting for an all-clear signal should it come. But we learned long ago not to anticipate signals—right now, the trend is mostly sideways, few stocks are running away on the upside (most that have perked up fall back quickly) and most companies are set to report earnings over the next three weeks. Thus, we advise sticking with a cautious stance, which means holding some cash and keeping new positions on the small side.
This week’s list has a wide variety of stocks and sectors, all of which have shown great relative strength. Our Top Pick is Cheniere Energy (LNG), which has a unique story and a stock that’s built a great-looking base. Earnings are out soon, so start small.
| Stock Name | Price | ||
|---|---|---|---|
| Abercrombie & Fitch (ANF) | 15.37 | ||
| Autohome (ATHM) | 98.65 | ||
| Cheniere Energy (LNG) | 63.82 | ||
| E*Trade Financial (ETFC) | 0.00 | ||
| First Solar (FSLR) | 83.74 | ||
| InterXion (INXN) | 0.00 | ||
| Loxo Oncology (LOXO) | 186.59 | ||
| Netflix, Inc. (NFLX) | 423.92 | ||
| Pioneer Natural Resources (PXD) | 0.00 | ||
| TransUnion (TRU) | 83.09 |
In this kind of so-so atmosphere, we are taking exactly what the market hands us and making decisions based on what the charts show us. That means a little selling today, but we also have an exciting and very new stock for our watch list. Read on for all the details.
The market seesaw continues, but overall, we’re trading at about the same levels as this time last month.
The most recent retail sales report showed improvement, as did housing starts. And with the unemployment rate and job openings steady, the economy continues on a positive trend. First quarter earnings—so far—look good, and the S&P 500 forward P/E of 16.4 tells us that values are not overblown.
The most recent retail sales report showed improvement, as did housing starts. And with the unemployment rate and job openings steady, the economy continues on a positive trend. First quarter earnings—so far—look good, and the S&P 500 forward P/E of 16.4 tells us that values are not overblown.
The long-term trend of the market remains up, while the intermediate trend remains down, though the current rally is working to change that—and may well succeed. In any case, we’re seeing growing numbers of strong stocks, and today’s recommendation is one of them.
It’s a little-known technology stock providing a valuable public service, with a high rate of recurring income. I think you’ll like it.
It’s a little-known technology stock providing a valuable public service, with a high rate of recurring income. I think you’ll like it.
Current Market OutlookThe positives are starting to accumulate when you’re talking about some secondary measures of the market’s performance—many growth stocks are holding up well, the broad market showed positive divergences when the indexes retested their February lows and the market’s clearly shrugged off a bunch of bad news. All of that is encouraging, and we’re nudging our Market Monitor up a notch in response. However, we’re still advising a relatively cautious stance because the market’s intermediate-term trend hasn’t turned up; most major indexes are still below key moving averages and, at best, are basically stuck in the middle of three-month trading ranges. We’re still in favor of giving your resilient stocks a chance to get going, and we don’t think the evidence supports being outright defensive. But holding some cash on the sideline, picking entry points carefully and/or keeping new positions on the small side still make sense.
This week’s list has many stocks that have staged breakouts (or come close) in recent days, even as the market is still iffy. Our Top Pick is WPX Energy (WPX), one of many oil stocks that’s come to life as that sector sets up.
| Stock Name | Price | ||
|---|---|---|---|
| Alcoa (AA) | 0.00 | ||
| Coupa Software (COUP) | 262.20 | ||
| Fiat Chrysler (FCAU) | 0.00 | ||
| GoDaddy (GDDY) | 0.00 | ||
| Heron Therapeutics (HRTX) | 35.25 | ||
| HollyFrontier Corporation (HFC) | 0.00 | ||
| Melco Resorts (MLCO) | 0.00 | ||
| RingCentral (RNG) | 238.73 | ||
| Semtech (SMTC) | 51.09 | ||
| WPX Energy (WPX) | 0.00 |
It was another rocky month in the markets, but net-net, we are trading at about the same levels since last month’s issue.
Updates
What a difference a month can make! What an April! The S&P rose 9.6% in April, making it the best single month for the market in six years. It hit an all-time high on Friday.
Sure, the war isn’t over. But the market doesn’t really seem to regard it as a war anymore, more like a blockade situation with the possibility of some skirmishes. While there is still headline risk, investors have moved beyond this war and are focusing on earnings. And for good reasons.
Sure, the war isn’t over. But the market doesn’t really seem to regard it as a war anymore, more like a blockade situation with the possibility of some skirmishes. While there is still headline risk, investors have moved beyond this war and are focusing on earnings. And for good reasons.
The results are in for the month of April. It was fabulous. The S&P rose 9.6%, making it the best single month for the market in six years. It hit an all-time high on Friday.
Sure, the war isn’t over. But the market doesn’t really seem to regard it as a war anymore, more like a blockade situation with the possibility of minor skirmishes. While there is still headline risk, investors have moved beyond this war and are focusing on earnings.
Sure, the war isn’t over. But the market doesn’t really seem to regard it as a war anymore, more like a blockade situation with the possibility of minor skirmishes. While there is still headline risk, investors have moved beyond this war and are focusing on earnings.
Now before you call me crazy concerning today’s newsletter headline, hear me out.
Even though large-cap names have garnered more than a fair share of attention among investors this year, I think a case can be made that companies with big capitalizations have a lot more room to run higher before they can be truly regarded as “overbought” or “played out.”
Even though large-cap names have garnered more than a fair share of attention among investors this year, I think a case can be made that companies with big capitalizations have a lot more room to run higher before they can be truly regarded as “overbought” or “played out.”
The market is digesting the push and pull of higher oil prices, a deeply divided Federal Reserve, prospects for a prolonged blockade of the Strait of Hormuz and fading momentum from the AI trade that helped push markets to all‑time highs earlier this month.
Despite the crosscurrents, the overall tone still tilts bullish, supported by investor comfort (for the time being) with the geopolitical tension, resilience in the U.S. economy, and improving visibility into earnings growth over the coming quarters.
Despite the crosscurrents, the overall tone still tilts bullish, supported by investor comfort (for the time being) with the geopolitical tension, resilience in the U.S. economy, and improving visibility into earnings growth over the coming quarters.
Yesterday, four tech giants, Alphabet, Amazon, Meta and Microsoft, representing 22% of the S&P 500’s market value, reported strong quarterly earnings that highlighted the importance of AI.
You might think the above companies and their AI brethren are “asset light” companies but you would be very wrong.
You might think the above companies and their AI brethren are “asset light” companies but you would be very wrong.
It’s been a glorious April following a miserable March for the market. What happens in May may determine which direction stocks are headed for the rest of the year.
That’s probably overstating things a bit, but May should be crucial for the reasons we discussed last week: namely, the fate of the Iran war, but also the bulk of first-quarter earnings season and the introduction of a new Fed chair.
That’s probably overstating things a bit, but May should be crucial for the reasons we discussed last week: namely, the fate of the Iran war, but also the bulk of first-quarter earnings season and the introduction of a new Fed chair.
What war? This market is moving on. We may not be out of the woods yet, but investors are looking beyond the Iran war.
Stocks have already made up all losses from a rough March and then some. The S&P 500 had fallen 7.7% in the month of March by the 30th. Since then, the index has rallied over 13%. The S&P is now at a higher level than before the war began and is hitting new all-time highs.
Stocks have already made up all losses from a rough March and then some. The S&P 500 had fallen 7.7% in the month of March by the 30th. Since then, the index has rallied over 13%. The S&P is now at a higher level than before the war began and is hitting new all-time highs.
The other day I was paid a visit by a roving ISP salesman who was pitching his company’s fledgling internet service over the local monopoly’s. We struck up a conversation and he asked what I did for a living. When I told him, his eyes lit up and he asked, “Got any good stocks you can recommend?”
Without thinking I blurted out, “Anything AI-related. You can’t go wrong.” The advice was only semi-facetious, for there’s undeniably a degree of truth behind it. My instinctive response to that question also prompted me to consider the question: just how long can the broad market continue its “all things AI” run without broader sector participation
Without thinking I blurted out, “Anything AI-related. You can’t go wrong.” The advice was only semi-facetious, for there’s undeniably a degree of truth behind it. My instinctive response to that question also prompted me to consider the question: just how long can the broad market continue its “all things AI” run without broader sector participation
Note: I’m out of town this week, so I’ll be a bit briefer on the update today—but I’m still checking my laptop a couple of times a day if you have any questions or comments. I’ll be back at my desk come Monday. Cheers.
WHAT TO DO NOW: Remain optimistic. The market and some leaders have hesitated, but all of our market timing indicators are bullish, and most stocks we own or are watching are working. Last Friday, we bought a half-sized stake in Nebius (NBIS) and added a 3% additional stake in ProShares S&P 500 Fund (SSO); earlier this week, we sold our small remaining position in GE Aerospace (GE); and tonight, we’ll buy a half-sized position (5% of the portfolio ) in Cava (CAVA). We’ll still have 46% in cash or so after these moves.
WHAT TO DO NOW: Remain optimistic. The market and some leaders have hesitated, but all of our market timing indicators are bullish, and most stocks we own or are watching are working. Last Friday, we bought a half-sized stake in Nebius (NBIS) and added a 3% additional stake in ProShares S&P 500 Fund (SSO); earlier this week, we sold our small remaining position in GE Aerospace (GE); and tonight, we’ll buy a half-sized position (5% of the portfolio ) in Cava (CAVA). We’ll still have 46% in cash or so after these moves.
Despite all the headline noise lately we’re marching deeper into first‑quarter earnings season with the market’s path of least resistance still pointing higher.
Optimism around the extension of the tentative ceasefire in the Middle East has reduced geopolitical anxiety to a seemingly manageable level. The U.S. economy continues to show resilience, and the corporate earnings outlook points toward meaningful growth in the coming quarters and years.
Optimism around the extension of the tentative ceasefire in the Middle East has reduced geopolitical anxiety to a seemingly manageable level. The U.S. economy continues to show resilience, and the corporate earnings outlook points toward meaningful growth in the coming quarters and years.
The old saying, “History doesn’t repeat itself, but it rhymes,” is an apt one for the stock market these last two years.
In early 2025, the S&P 500 raced to new all-time highs before peaking in late January/early February, only to get dragged down in March and April by a geopolitical crisis (tariffs/Liberation Day), before rallying in a V-shaped pattern as the severity of the crisis abated.
In early 2025, the S&P 500 raced to new all-time highs before peaking in late January/early February, only to get dragged down in March and April by a geopolitical crisis (tariffs/Liberation Day), before rallying in a V-shaped pattern as the severity of the crisis abated.
The market turned on the afterburners. The S&P 500 made up all the March losses and catapulted to a brand new high in a remarkably short time. It’s a market that sure looks like it wants to go higher. But stocks are being held back this week by more war uncertainty.
The current ceasefire with Iran expires on Wenesday night. Talks may not happen, and war talk is growing. The resumption of the war will almost certainly prompt a decline in the market. Aside from that near-term threat, investors are clearly looking past this war. Hopefully, it won’t last much longer.
The current ceasefire with Iran expires on Wenesday night. Talks may not happen, and war talk is growing. The resumption of the war will almost certainly prompt a decline in the market. Aside from that near-term threat, investors are clearly looking past this war. Hopefully, it won’t last much longer.
Alerts
We still believe the odds favor the next big move being up, but near-term, the outlook is up in the air. Thus, we’re holding our resilient performers, but we’re also holding some cash and getting rid of stocks that break support.
This shipbuilding company is also ranked a ‘Strong Buy’ by Zacks, based on impressive earnings revisions (up $0.88), sales, dividend and EPS growth.
This digital printing company beat analysts’ estimates by three cents last quarter, and is forecast to grow at more than a 50% rate for the next five years.
Energy stocks are in the news right now, partly because some of them have begun their price rebounds from recent pullbacks, and partly due to a focus on oil prices during the current Middle East conflict. Here’s a quick assessment and comparison of our four energy stocks.
With oil and natural gas producers adding active rigs, the demand for sand is growing. And that’s where this producer of monocrystalline sand comes in.
Eight analysts have raised their 2017 earnings forecast for our first idea—an international hotel company.
Our position in this stock, a play on Prime Minister Shinzo Abe’s efforts to drive inflation in Japan’s economy, never really lived up to expectations.
Our first idea is a fund that seeks investment results that correspond to two times (2x) the daily performance of the S&P 500. Our second recommendation is a sale of a previous idea.
This stock broke down badly last week when financial stocks fell apart.
Our first stock idea is rated ‘Buy’ by Zacks, based on rising earnings estimates and value.
This stock was dropped to Sell, largely because the stock seemed pricey.
We downgraded this stock to Sell.
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 Top Ten 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 Top Ten features.