As the year winds to a close, we find ourselves in the grip of a mild but long bull market in emerging markets stocks, and the big question on all investors’ minds is whether the trend will continue into the new year. No one knows, of course, but the Cabot system says there’s no reason to fight the trend!

The year is poised to end on a high note, as the major indexes continue to hit new highs, with the Dow hitting a record number of new all-time highs this calendar year.

Bullish sentiment remains high, both for investors and advisors. And one contributor also believes that the market is becoming more attractive for gold investors. Our Spotlight Stock is a two-pronged recommendation, as the company is benefiting from owning and selling off its land holdings, which also happen to be in one of the most profitable oil regions in the country. As I explain in my Feature article, this oil basin is nowhere near depletion, so the profits should continue to roll in for many years.

As 2017 comes to a close, we all have a lot to be thankful for, as the bull market provided us with a great environment for stock picking. There’s always room for improvement (which we’ll probably write about in future issues), but coming into this week the Model Portfolio was sitting on a gain north of 40%. We’ll take it.

Looking ahead, we remain bullish, especially longer-term, as some big-picture indicators point toward higher prices. Near-term, though, it’s hard to ignore the optimistic sentiment, which we write about in today’s issue. It’s very inexact, so we don’t base trading decisions on it, but it’s good to remember to keep your eyes (and your options) open.

Today’s recommendation is a medical device company whose one product—an insulin delivery system for diabetics—is growing market share rapidly.

Current Market Outlook


The major indexes boomed again today, with three of the five we track (S&P 500, Nasdaq and NYSE Composite) all notching all-time highs. We would point out that today’s move came on obvious news (likelihood of corporate tax cuts), and that sentiment is getting hot and heavy, which increases the risk of a market pullback or a generally trickier environment (rotation, choppy trading, etc.). Thus, you want to keep your feet on the ground and be sure you’re looking for decent entry points and honoring your stops. But there’s no question the majority of evidence remains solidly positive, and until that changes, you should remain in a bullish frame of mind.

Not surprisingly, this week’s list has many strong charts in a bunch of different industries. Our Top Pick is Urban Outfitters (URBN), a solid turnaround situation in a newly leading sector. Try to buy on weakness.

Stock Name	Price	Buy Range	Loss Limit
Canada Goose Holdings (GOOS)	46.21	26-27.5	23.5-24.5
CF Industries (CF)	45.23	39-40.5	36-37
Cree, Inc. (CREE)	67.96	38-40	34.5-36
KB Home (KBH)	36.05	30-31.5	27.5-28.5
Lululemon Athletica (LULU)	304.69	72.5-75	66.5-68.5
MercadoLibre, Inc. (MELI)	980.83	312-322	285-290
PRA Health Sciences Inc. (PRAH)	96.08	87.5-90	82-84
Sage Therapeutics (SAGE)	0.00	155-165	125-132
SVB Financial Group (SIVB)	0.00	228-235	208-213
Urban Outfitters (URBN)	0.00	32-34	28-29

While flashier, more star-studded teams like Lionel Messi’s Argentina, Kylian Mbappe’s France and Erling Haaland’s Norway garnered most of the headlines at the just-completed World Cup, Spain was the best team. There was nothing flashy about Spain: no mega-stars, not a ton of goals, no relentless attack. Instead, they dominated the tournament with precision passing, immaculate ball control and near-impenetrable (just one goal allowed all tournament!) defense.

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 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.

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.

WellCare Health Plans (WCG) is up $50 (60%) since joining the Growth Portfolio in October 2015, and I’m thinking the stock is way overdue for a pullback. Today, I’m pulling the plug on WCG. Sell.

Updates on Dollar Tree (DLTR), Big Lots (BIG ), GameStop (GME) and Carnival (CCL).

Today we’re reporting on earnings for Applied Materials (AMAT), and adding two stocks to the Cabot Undervalued Stocks Advisor portfolios, Archer Daniels Midland (ADM) and Total SA (TOT).

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.