Issues
The market correction finally arrived swiftly in recent days. If you set aside cash with which to buy low, it’s okay to begin deploying some of that cash. In today’s issue we have one new addition to the Buy Low Opportunities Portfolio.
Current Market OutlookAfter a big run last year and a moonshot during January, the sellers have finally come out of the woodwork, pushing the major indexes (and many leading stocks) sharply lower during the past six trading sessions, including a mini-crash today (the Dow was down 1,500 points at one point!). Looking at the evidence, the bull market (longer-term trend) is still intact, but the intermediate-term trend has turned negative and many leading stocks have come unglued. In the near-term, we certainly wouldn’t be shocked to see a snap back, but following a major extreme in price and sentiment two weeks ago and this abnormal selling, stocks probably need some time to wear out the weak hands and digest their recent gains. We’re moving our Market Monitor down to neutral to respect the change in the evidence—we don’t advise selling wholesale here, but you should honor your stops and loss limits, and on the buy side, be very choosy and keep new positions small until the market finds support.
This week’s list is a potpourri of stocks and sectors, most of which have recently reacted well to earnings. Our Top Pick is Pure Storage (PSTG), a fast-growing outfit that emerged from a base on big volume last month.
| Stock Name | Price | ||
|---|---|---|---|
| Autohome (ATHM) | 98.65 | ||
| BofI Holding (BOFI) | 42.93 | ||
| Harris Corp. (HRS) | 198.60 | ||
| Knight-Swift Transportation Holdings Inc. (KNX) | 40.61 | ||
| LPL Financial Holdings (LPLA) | 85.22 | ||
| MercadoLibre, Inc. (MELI) | 980.83 | ||
| Meritor (MTOR) | 21.46 | ||
| MyoKardia (MYOK) | 108.56 | ||
| Pure Storage (PSTG) | 25.64 | ||
| Shutterfly (SFLY) | 94.71 |
Today’s stock candidate is a promising small-cap biotech with two high-potential drug candidates, each of which could develop into a billion-dollar asset.
The title of today’s issue is “Don’t Overreact”—the major trend of the market is still up, and there are many signs pointing to higher prices in the months ahead. Chloe adds a new stock to the Safe Income Tier and presents her view on the forces affecting interest rates and income investments today.
After a huge run, the market finally hit some turbulence this week, and it’s a 50-50 bet whether we see more profit taking going forward. Our focus is mostly on the bigger picture (still very bullish) and individual stocks, as the advance has gotten more selective and earnings season is revving up. We remain mostly bullish, but it remains important to take things on a stock-by-stock basis.
My recommendation this week is a high-quality Chinese growth stock that has just completed a normal pullback. In fact, while the market was down today, this stock was up!
Current Market OutlookThe market is coming off another very solid week, with the major indexes tagging higher highs on solid volume and the early returns from earnings season generally positive. It is fair to say the advance is becoming more selective, with some factors (bad earnings, rising interest rates, falling U.S. dollar) causing certain areas to stall out. Overall, we remain bullish, especially in the longer-term, as this recent unusual strength has historically portended good things down the road. In the near-term, though, you should be taking things on a stock-by-stock basis, ditching stocks that break their intermediate-term uptrends and looking for buying opportunities either on shakeouts (in established leaders) or earnings blastoffs.
This week’s list has everything from turnarounds to speculations to recent earnings winners—there’s a lot to like here. Our Top Pick is AbbVie (ABBV), which has been a steady liquid leader in the biotech space and just popped on earnings.
| Stock Name | Price | ||
|---|---|---|---|
| AbbVie Inc. (ABBV) | 93.53 | ||
| G-III Apparel (GIII) | 45.25 | ||
| Helmerich & Payne (HP) | 63.68 | ||
| Ligand Pharmaceuticals (LGND) | 267.14 | ||
| Neurocrine Biosciences (NBIX) | 123.40 | ||
| Shopify (SHOP) | 585.00 | ||
| Spectrum Pharmaceuticals (SPPI) | 19.31 | ||
| Sprouts Farmers Market (SFM) | 19.00 | ||
| Varian Medical (VAR) | 118.33 | ||
| Weibo (WB) | 98.16 |
In this week’s issue, there’s good news about the portfolio’s performance in 2017 and great news about TAL Education. There’s also a new recommendation for a big energy company that’s emerging from the cloud of an enormous national scandal.
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
Freeport-McMoRan (FCX) is under pressure today as the company continues to battle with Indonesian authorities regarding its big mine in that country.
This money center bank beat estimates by two cents, but recently cut its CEO’s pay for not living up to its financial targets. Shares appear to be currently undervalued.
This tech stock beat analysts’ estimates, reporting $0.86 EPS vs. the $0.79 forecast.
Universal Electronics (UEIC) reported earnings yesterday and shares are up 12%. Kraft Heinz (KHC) shares are up over 8% today on news that the company has made a bid to buy Unilever (UN).
This chemical company beat estimates by a penny last quarter and was just awarded a $1.14 million project from the U.S. Department of Energy to develop new silica-based performance fillers for non-tread components which improve the fuel efficiency and performance of tires.
Molina Healthcare (MOH) reported huge fourth-quarter and full-year earnings misses yesterday after the markets closed, bearing no resemblance to analysts’ consensus earnings estimates.
American International Group (AIG – yield 2.1%) reported a larger-than-expected fourth-quarter reserve charge of $5.6 billion. Also, updates on GameStop (GME) and Kraft Heinz (KHC).
Fortress Investment (FIG 8.00) will be acquired by Japan’s SoftBank for $8.08 per share, all cash, and the stock has reached my sell target. Quest Diagnostics DGX 94.70) reached my Min Sell Price of 94.87 this morning.
I’m recommending the sale of Applied Materials (AMAT – yield 1.1%). The stock is up about 35% since joining the Growth Portfolio in August 2016.
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.