Writing this Top Picks Mid-Year Update issue is sort of like opening a Christmas present. While I continually keep my eyes on the stocks, I’m always excited to find out the final results—which contributors—and stocks—not only came in on top in terms of returns but also beat the averages.

Today’s recommendation is a doozy. It may go to the moon, or it may fall flat on its face, but it’s got a good story, and I think we’ve got a decent entry point here.

Current Market Outlook


On an intermediate-term basis, the overall market remains stuck in the middle—many areas are still looking ragged, and most major indexes are hanging around their 50-day moving averages. Our screens this weekend did reveal a number of solid five- to six-week setups among growth stocks, as well as lots of solid action in other areas that have recently come to life. If the market gets going from here, there should be plenty of stocks to jump on. We’re not opposed to buying small amounts of a couple of these potential leaders today, but until we see more than just a day or two of rallying, you should play things carefully. We have our Market Monitor at a level 6 (out of 10), and will simply let the market tell us (through its own action) whether the next big move is up or down.

In the meantime, we’re laser-focused on stocks that have either just blasted out of bases or uptrending stocks that have resisted the Nasdaq’s wobbles since early June. Our Top Pick is Medidata Solutions (MDSO), which remains in good shape after lifting from a two-year base in April. Keep positions small.

Stock Name	Price	Buy Range	Loss Limit
Alibaba (BABA)	254.81	138-144	125-130
Align Technology (ALGN)	316.20	145-150	135-137
American Airlines Group Inc. (AAL)	0.00	51-53	46-47.5
Exact Sciences (EXAS)	116.91	35-37	31.5-32.5
First Republic Bank (FRC)	0.00	100.5-103.5	96-96.5
Medidata Solutions (MDSO)	0.00	77-80	71-72
Puma Biotech (PBYI)	0.00	82.5-87	74-76
RingCentral (RNG)	238.73	35.5-37.5	33-34
Tesoro (TSO)	0.00	92-95	87-88
WellCare Health Plans, Inc. (WCG)	271.83	177-181	166-168

This month’s selection is a small company in the health care space given the strength in this group of stocks. The company has a very specific focus on products to treat peripheral nerve injuries, and it’s growing revenue north of 50% annually.

In tonight’s issue, we write about what we’re seeing in the market’s recent rotation as well as another batch of studies that portend higher prices for the market down the road. We also dive into all our recommendations and present some of our favorite ideas for the next market upleg.

Today’s featured stocks include a bank and its CCAR results, a retailer and its prognosis in the wake of the Amazon-Whole Foods merger, and a new addition to the Growth & Income Portfolio.

Current Market Outlook


The Nasdaq and leading growth stocks were whacked again last week, extending the correction in that group to just over three weeks. At this point, the major trend is still up, but intermediate-term, the onus is on the bulls, as many stocks (and the Nasdaq itself) have fallen toward key support—a couple of big selloffs from here would be a red flag, especially for names that have had big runs during the past year, though a strong sign of support could arrest the decline. Right now, we remain mostly bullish because many stocks are still in good shape, especially early-stage growth stocks that are trading resiliently and new leadership is emerging as money rotates into other areas.

This week’s list is a mix of both categories. Our Top Pick this week is Citigroup (C), which, despite its huge size, has great potential thanks to industry trends and recent news flow. The stock was the first big bank to leap to new highs recently, too.

Stock Name	Price	Buy Range	Loss Limit
Carvana (CVNA)	82.90	18-20	15-16.5
Citigroup Inc. (C)	0.00	66-68	63-64
Exelixis (EXEL)	27.35	23.5-25	21-21.5
iRhythm Technologies (IRTC)	51.15	41-43	37-38
Nintendo Co., Ltd. (NTDOY)	0.00	39.5-41.5	36-37
Packaging Corp (PKG)	0.00	108-111	101-103
Square, Inc. (SQ)	91.04	22-23.5	20-21
Teladoc, Inc. (TDOC)	127.95	32.5-34	29.5-31
Wayfair (W)	167.03	72-75	65-67
Winnebago (WGO)	48.56	34-35.5	31-32

The recommended stock, unusually, is not a U.S. company; it’s a Canadian company. But it trades on the NYSE, and it has a great growth story.

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.

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.