Current Market Outlook


The market enjoyed a nice bounce after last Monday’s shakeout, especially in growth-oriented sectors and indexes like the Nasdaq. But we don’t think the market is quite out of the woods—by our measures, the intermediate-term trend is still on the fence (most indexes are just above or below their 50-day lines), and the fact is that far fewer stocks are hitting new highs now than the past couple of times the indexes have tested their highs. To be clear, we’re not overly negative, as the longer-term trend looks great, as do many stocks, and the major indexes are just a couple of percent from all-time highs. But we think it’s best to play things carefully (holding some cash, keeping new buys relatively small, etc.) until the market confirms that the post-election uptrend is back on track.

This week’s list is a mixed bag, with some turnarounds, some recent earnings winners and others that have soared on news. For our Top Pick, we’re going with Western Digital (WDC), which, after a brief shakeout, has come storming back to new highs on great volume.

Stock Name	Price	Buy Range	Loss Limit
Huntsman (HUN)	0.00	23-24.5	21-22
Jabil Inc. (JBL)	41.50	27.5-29	26-26.5
Jazz Pharmaceuticals (JAZZ)	0.00	138-144	129-130
Lending Tree (TREE)	411.51	120-124	112.5-115
Penn National Gaming (PENN)	45.38	17.5-18.5	15.8-16.5
PRA Health Sciences Inc. (PRAH)	96.08	63-65	58-59
RH Inc. (RH)	252.93	44-46	40-41.5
Tesla, Inc. (TSLA)	818.87	280-295	260-270
Vertex Pharmaceuticals (VRTX)	230.36	104-109	95-100
Western Digital Corporation (WDC)	0.00	79.5-82.5	73-75

We’re adding a 100-year dividend payer to the Safe Income Tier, and saying sayonara to a perpetual underperformer. We also take a look at the incredible power of dividend reinvestment.

In tonight\'s issue, we write about the importance of following your plan, especially soon after you buy a stock. We dive into our new \"7.5% Rule,\" which is another in a long line of studies that show higher prices to be very likely in the months down the road.

Current Market Outlook


During the past three weeks, we’ve seen the market’s breadth begin to sag (small- and mid-cap indexes haven’t made much progress in three months), then we saw some key sectors falter (financials have decisively broken down) and now the market’s own intermediate-term trend is on the fence. That’s enough yellow flags for us to advise trimming your sails a bit; we’re nudging our Market Monitor down to a level 6, as the onus is on the bulls to pull us out of this near-term funk. However, longer-term, we’re much more optimistic—today’s show of support was encouraging, of course, and there remains a ton of strong stocks (especially growth-oriented stocks) out there, so you should continue to hold on tightly to your top performers.

This week’s list is chock-full of stocks that have ignored the market’s recent dip. There are many good names to choose from, our Top Pick is Teladoc (TDOC), a newer issue that’s emerging from a long post-IPO droop and consolidation. It has a great story.

Stock Name	Price	Buy Range	Loss Limit
Criteo (CRTO)	0.00	49.5-51.5	46-47
Grand Canyon Education (LOPE)	121.03	66-69	60-62
Lumentum (LITE)	87.00	50-54	43-45
MercadoLibre, Inc. (MELI)	980.83	205-210	196-200
Momo Inc. (MOMO)	44.65	31.5-33.5	29-30
RingCentral (RNG)	238.73	25.5-27	24-25
SiteOne Landscape Supply (SITE)	98.49	44-46	40.5-41.5
Skyworks Solutions (SWKS)	0.00	94-97	87-88
Teladoc, Inc. (TDOC)	127.95	23.5-25	20.5-21.5
Wynn Resorts (WYNN)	121.08	107-111	98-101

Last week was a good one for the bulls, not because the indexes finished in the green but because after three poor weeks, the broad market finally found some support, with breadth improving and the number of stocks hitting new lows drying up. We wouldn’t say the broad market is completely out of the woods; another few days of positive action would be necessary to conclude that. But, overall, we’re optimistic—the intermediate- and longer-term trends are pointed up, most stocks outside of commodity sectors remain in good shape, and we’re even seeing some rotation into more growth-oriented groups, which is usually a good sign. We’ll keep our Market Monitor at a level 7 right now as we wait to see further confirmation from the broad market.

This week’s list is chock full of strong stocks with solid growth stories from a variety of industries. We’ll keep it simple with our Top Pick this week, going with Adobe Systems (ADBE), a liquid growth leader that just reported a strong quarter.

Stock Name	Price	Buy Range	Loss Limit
Adient (ADNT)	0.00	70-73	64-65
Adobe Inc. (ADBE)	315.23	123-127	116-119
Axalta Coating (AXTA)	0.00	31-32.5	28-29
Broadcom Limited (AVGO)	266.26	215-223	200-205
Children’s Place (PLCE)	0.00	114-117	105-107
Glaukos Corp. (GKOS)	67.84	46-48.5	41.5-43
KB Home (KBH)	36.05	18.5-19.5	17-17.5
Micron Technology, Inc. (MU)	43.31	25-26	23-23.5
Olin Corp. (OLN)	0.00	31-33	29-30
Veeva Systems (VEEV)	180.23	47-50	44-46

While our contributors—and advisors in general—remain in the bullish camp, the sentiment (as you’ll see in our Advisor Sentiment Barometer) has turned a bit more bearish.

WHAT TO DO NOW: Big picture, the market and most leaders look great, and our market timing indicators are in fine shape. Near-term, though, there’s little doubt things have gotten a bit giddy, with many names and indexes extended to the upside. Tonight, we’re placing Cava (CAVA) on Hold as that stock has been caught up in some group weakness; we’ll hold our 45% cash position for now, but stay tuned, as we’d like to add some new names (or add to existing names) in the near future.

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.

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.

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.”

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.

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.

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.

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 30^th. 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

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.

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.

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.

The rebound in emerging market stocks has given us a new buy signal. We’re going to complete our position in Weibo (WB) by buying another half position, and take a full position in NetEase (NTES).

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.