Issues
Current Market OutlookAlong with heaps of snow in the Northeast, February has brought a marked change in character for the general market—the major indexes have moved into new high ground (led by the growth-oriented Nasdaq Composite), and individual stocks have done the same. In the short-term, we have seen a little giddiness take hold, which could easily lead to some potholes and shakeouts. But there’s no doubt that the intermediate-term evidence remains bullish, so we believe dips will present good buying opportunities.
This week’s list has an interesting mix of volatile glamour stocks and bigger-cap companies that are under accumulation. There are many attractive charts, but our Top Pick is CommScope (COMM), a telecom play that’s super-strong after a recent, game-changing acquisition.
| Stock Name | Price | ||
|---|---|---|---|
| Zillow (Z) | 76.64 | ||
| VeriSign (VRSN) | 190.71 | ||
| Vipshop Holdings (VIPS) | 14.25 | ||
| Ultimate Software (ULTI) | 0.00 | ||
| Sony Corp. (SNE) | 0.00 | ||
| Molina Healthcare (MOH) | 0.00 | ||
| Marathon Petroleum Corporation (MPC) | 0.00 | ||
| FireEye (FEYE) | 0.00 | ||
| CommScope (COMM) | 0.00 | ||
| Berry Global (BERY) | 64.22 |
Current Market OutlookFor the past three months, the market has been on the cusp of breaking out a few times, only to fail as selling pressures grew. The past couple of weeks, however, have brought a change of character—many stocks surged on earnings, and then held and even built on those gains. And of course, the major indexes have kissed new high ground. That doesn’t guarantee higher prices—you’ll often see major indexes “fake out” above obvious resistance before pulling back—but we’re putting more emphasis on the increasingly positive action of individual stocks. Our Market Monitor is back into bullish territory, and we’re looking to put money to work as opportunities arise.
This week’s list has a broad array of stocks and sectors, a sign the buying pressures have broadened. Our Top Pick is LinkedIn (LNKD), which gapped out of a huge base on earnings two weeks ago—it looks like a liquid leader and should do very well if the market can continue higher.
| Stock Name | Price | ||
|---|---|---|---|
| Twitter (TWTR) | 40.37 | ||
| Skechers (SKX) | 0.00 | ||
| Sealed Air (SEE) | 0.00 | ||
| Ryland (RYL) | 0.00 | ||
| Pharmacyclics (PCYC) | 0.00 | ||
| Martin Marietta Materials (MLM) | 261.52 | ||
| LinkedIn Corporation (LNKD) | 0.00 | ||
| CyberArk (CYBR) | 111.74 | ||
| Charter Communications (CHTR) | 0.00 | ||
| Apple (AAPL) | 248.94 |
Current Market OutlookThe market definitely showed some improvement last week—the major indexes bounced back decently, and importantly, many recent earnings winners not only held their gains but stretched higher, something we haven’t seen much of for a few months. Because of that, we’re pushing the Market Monitor up a bit, but we remain relatively neutral for one simple reason: the market (and most stocks) are still range-bound, and until that changes, it’s going to be hard for any stock to make persistent progress. We’re OK doing some new buying, especially in some recent earnings winners (preferably on dips), but holding cash and keeping risk in check is necessary in this environment.
The good news is that we continue to see a broadening array of stocks firming up. Our Top Pick for the week is Tesoro (TSO)—while most energy stocks are still struggling, refiners are surging, and TSO looks like the leader. Buy on dips.
| Stock Name | Price | ||
|---|---|---|---|
| Vulcan Materials Company (VMC) | 137.10 | ||
| Tesoro (TSO) | 0.00 | ||
| Sprouts Farmers Market (SFM) | 19.00 | ||
| Lear Corp. (LEA) | 0.00 | ||
| Integrated Device Technology (IDTI) | 0.00 | ||
| GrubHub (GRUB) | 140.03 | ||
| E*Trade Financial (ETFC) | 0.00 | ||
| Tableau Software (DATA) | 126.42 | ||
| Ashland Inc. (ASH) | 0.00 | ||
| Amazon.com (AMZN) | 2.00 |
Current Market OutlookOfficially, the major indexes are still in no-man’s land, gyrating within their two-month ranges. But the action is definitely feeling heavier. While a few stocks have emerged during earnings season (including a few in today’s issue), every market rally of a day or two has led to quick selling pressure; the broad market can’t get its act together and most stocks that poke into new high ground quickly retreat. We’re still not willing to make any bold predictions here—the environment remains more choppy than bearish—but the bottom line is that no money is being made. Thus we are knocking our Market Monitor down a notch (though it’s still in neutral territory) due to the recent deterioration.
The silver lining is that our screens are still picking up on a good number of resilient stocks, including more than a few earnings winners. Our Top Pick this week is Harman International (HAR), which has come to life after a yearlong rest. Try to buy on dips.
| Stock Name | Price | ||
|---|---|---|---|
| Pacira Biosiences (PCRX) | 54.85 | ||
| ServiceNow (NOW) | 341.86 | ||
| Netflix, Inc. (NFLX) | 423.92 | ||
| Lowe’s Companies (LOW) | 98.15 | ||
| Harman International Industries, Inc. (HAR) | 0.00 | ||
| Freescale Semiconductor (FSL) | 0.00 | ||
| Blackstone Group (BX) | 49.12 | ||
| Burlington Stores (BURL) | 193.95 | ||
| Biogen (BIIB) | 0.00 | ||
| Boeing (BA) | 432.22 |
Current Market OutlookThe market bounced back nicely last week, though the major indexes are still in no-man’s land, sitting in the middle of their two-month ranges, and with many stocks still hovering just south of new highs as earnings season gets underway. We have seen a couple of rays of light (growth stocks are showing a hint of outperformance this month, which is a good thing), but overall, the environment remains on the edge—decisive upmoves by the indexes and breakouts from leading stocks would be bullish, while a move below support and a bunch of downside earnings gaps would be bearish. For now, we’re keeping our Market Monitor neutral, but we’ll let you know if we see a sustained trend getting underway.
This week’s list contains a couple of recent earnings winners, as well as a couple of others that shot to new highs on big volume last week. Because of the market environment, our Top Pick will be a slower, but surer, play—Starbucks (SBUX) isn’t going to double, but it’s just the type of mega-cap name that institutions can pile into following a great quarterly report.
| Stock Name | Price | ||
|---|---|---|---|
| Zebra Technologies (ZBRA) | 154.94 | ||
| WisdomTree (WETF) | 0.00 | ||
| Ulta Beauty (ULTA) | 331.95 | ||
| United Continental Holdings (UAL) | 96.76 | ||
| Starbucks (SBUX) | 64.49 | ||
| Royal Gold, Inc. (RGLD) | 129.66 | ||
| Janus Capital (JNS) | 0.00 | ||
| Dexcom (DXCM) | 421.36 | ||
| Dollar Tree (DLTR) | 0.00 | ||
| Agrium (AGU) | 0.00 |
Current Market OutlookAfter many weeks of choppy action, the sellers sunk their teeth into many indexes and stocks last week. Friday’s rebound was encouraging, but by our measures, the intermediate-term trend is sideways-to-down, the broad market is weak and few stocks are making any sustained upside moves—i.e., there’s still no money being made out there. On the positive side, many stocks remain near the top of multi-month ranges, and if earnings season goes well, plenty of new leadership could emerge. But right now, the onus is on the bulls to prove that they can create a sustained uptrend in the market and individual stocks. We’re knocking our Market Monitor to neutral and will be watching the action closely.
This week’s list has many resilient stocks that could be part of that new leadership if the bulls step up their game. Our Top Pick is Mohawk Industries (MHK), which is one of a few very strong housing supply stocks and has a recent catalyst to boot.
| Stock Name | Price | ||
|---|---|---|---|
| United Therapeutics (UTHR) | 0.00 | ||
| Taser (TASR) | 0.00 | ||
| Royal Caribbean Cruises (RCL) | 0.00 | ||
| Pharmacyclics (PCYC) | 0.00 | ||
| Outerwall Inc, (OUTR) | 0.00 | ||
| NetEase, Inc. (NTES) | 0.00 | ||
| Mohawk Industries (MHK) | 0.00 | ||
| HDFC Bank Limited (HDB) | 0.00 | ||
| Celgene (CELG) | 0.00 | ||
| Acuity Brands (AYI) | 0.00 |
Current Market OutlookThe market remains all over the place, with nearly every day bringing another 1%-plus move in the major indexes; such wide-and-loose action isn’t usually a good thing after a big market advance. That said, our outlook isn’t negative here (we’re still more bullish than bearish), and we continue to see more and more stocks set-up to get going … if the bulls can create a real, sustained uptrend. For now, though, it’s best to hold your top performers, do a little buying (preferably on weakness) and hold some cash as we wait for the market to show its true colors.
This week’s list is encouraging, as we’re not having any trouble spotting stocks that have consolidated tightly or recently popped to new highs on good volume. Our Top Pick is the first big-cap growth stock to surge above resistance this week—Chipotle Mexican Grill (CMG), which remains a great cookie-cutter story.
| Stock Name | Price | ||
|---|---|---|---|
| Valeant Pharmaceuticals (VRX) | 0.00 | ||
| Rackspace (RAX) | 0.00 | ||
| Rackspace (RAX) | 0.00 | ||
| Lululemon Athletica (LULU) | 304.69 | ||
| Leggett & Platt, Incorporated (LEG) | 49.79 | ||
| D. R. Horton (DHI) | 66.55 | ||
| Chipotle Mexican Grill (CMG) | 773.32 | ||
| CF Industries (CF) | 45.23 | ||
| Brunswick Corporation (BC) | 0.00 | ||
| Alkermes (ALKS) | 0.00 | ||
| Align Technology Inc. (ALGN) | 316.20 |
Current Market OutlookThe major indexes have been pulling back in recent days, and many are now back to their 50-day moving averages after a nice snapback for the second half of December. The question is whether the recent wobbles have more to do with year-end/start-of-year positioning (this portion of the calendar is notorious for crosscurrents creating volatility), or a renewed wave of selling that would basically be a continuation of what we saw in early December. We’re still optimistic, but we’re knocking our Market Monitor down a couple of notches today, and if all’s well, buyers should appear very soon as many stocks test support.
This week’s list has a larger-cap, steadier feel to it as the market favors “defensive growth” names most of all. Going along with that theme, our Top Pick is Whole Foods Market (WFM), whose stock is firmly in a turnaround phase.
| Stock Name | Price | ||
|---|---|---|---|
| Whole Foods (WFM) | 0.00 | ||
| Visa (V) | 0.00 | ||
| Virgin Airlines (VA) | 0.00 | ||
| PPG Industries (PPG) | 0.00 | ||
| O’Reilly Automotive (ORLY) | 0.00 | ||
| CarMax (KMX) | 0.00 | ||
| KLA Corp. (KLAC) | 158.80 | ||
| Jones Lang LaSalle (JLL) | 0.00 | ||
| Electronic Arts (EA) | 0.00 | ||
| Cirrus Logic Inc. (CRUS) | 0.00 |
Current Market OutlookA lot has changed since our last issue two weeks ago! Most important of all is the “blast-off” or “volume thrust” signal that came from two consecutive days (December 17 of 18) of very broad and powerful upside market action. It was strong enough to erase any lingering negative technical action, setting the stage not only for a nice Christmas rally but also the traditionally solid start to January that we expect. Thus our Market Monitor is now solidly back in the green bullish zone. So what to buy? Not oil stocks; it’s better to focus on what’s going up! Today’s issue brings a diverse group of both big old companies and younger faster growers, and all of them have great potential, but our Top Pick is Freescale Semiconductor (FSL), a chip manufacturer that has great potential to benefit from the boom in machine-to-machine (MTM) communication.
| Stock Name | Price | ||
|---|---|---|---|
| Whirlpool (WHR) | 0.00 | ||
| Taser (TASR) | 0.00 | ||
| Swift Transportation (SWFT) | 0.00 | ||
| RockTenn (RKT) | 0.00 | ||
| Red Hat (RHT) | 0.00 | ||
| ServiceNow (NOW) | 341.86 | ||
| Hawaiian Holdings Inc. (HA) | 0.00 | ||
| Freescale Semiconductor (FSL) | 0.00 | ||
| Bluebird Bio (BLUE) | 0.00 | ||
| Broadcom Limited (AVGO) | 266.26 |
Current Market OutlookIf we came down from another planet and looked at the state of the market, we would conclude that there are more things for the bulls to be excited about than not—few stocks have broken down, the indexes are above their 50-day lines and the major trends are still up.
But we’ve been around for the past month, and we know there’s clearly been an increase in distribution as investors fret over the reverberations of the oil price plunge. At the very least, not a lot of money has been made since mid-November. And that’s the reason we’re taking our foot off the gas; if the market and most stocks hold support, we’ll be quick to return to a more bullish stance, but for now, we think it’s best to do some watching and waiting, and possibly sell your weakest stock or two (and take partial profits in a winner or two).
This week’s list is more growth oriented than in recent weeks as investors abandon all things commodity-related. Our Top Pick is Restoration Hardware (RH) which has a great growth story and just broke out to new highs last week.
| Stock Name | Price | ||
|---|---|---|---|
| United Continental Holdings (UAL) | 96.76 | ||
| Sierra Wireless (SWIR) | 0.00 | ||
| RH Inc. (RH) | 252.93 | ||
| Outerwall Inc, (OUTR) | 0.00 | ||
| Lululemon Athletica (LULU) | 304.69 | ||
| Fiesta Restaurants (FRGI) | 0.00 | ||
| Dollar Tree (DLTR) | 0.00 | ||
| Centene (CNC) | 0.00 | ||
| Buffalo Wild Wings (BWLD) | 0.00 | ||
| Adobe Inc. (ADBE) | 315.23 |
Updates
If you have the feeling that this year’s boom in the tech sector—and the corresponding record highs in the major averages—isn’t being felt on a market-wide basis, you’re not imagining it.
As it turns out, the record lift in the Nasdaq and S&P is being driven by a troublingly small number of stocks. The result of this narrowing market is that value-focused investors like us have been forced to exercise patience while waiting for the boom to visit our corner of the market (more on that in a minute).
As it turns out, the record lift in the Nasdaq and S&P is being driven by a troublingly small number of stocks. The result of this narrowing market is that value-focused investors like us have been forced to exercise patience while waiting for the boom to visit our corner of the market (more on that in a minute).
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.
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.
Alerts
For the second time since we launched Smart Investing in Turbulent Times in October 2015, we have a takeover stock in the Buy Low Opportunities Portfolio.
I recommend that you sell Boeing and move your capital into WellCare Health Plans (WCG) or Cardinal Health (CAH).
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.