Current Market Outlook


The major indexes continue to whip around, with last Monday’s dip followed by a strong recovery, and now a renewed drop. By our measures, the intermediate-term uptrend is on the fence, and it’s clear that large chunks of the broad market are falling apart (gold, silver and oil shares are especially weak). And, at the very least, it’s obvious the environment remains very choppy and making big money is difficult. Of course, we’ve seen repeated shakeouts followed by recoveries, but the evidence tells us to pull in our horns; we’re shifting the Market Monitor back toward neutral while we wait for the buyers to return.

When doing buying, the key is to focus on what’s working and this week’s list has a good batch to consider. Our Top Pick is Parexel (PRXL), a steady grower in the medical testing field that is just getting going after a couple of big corrections during the past year.

Stock Name	Price	Buy Range	Loss Limit
XPO Logistics (XPO)	0.00	36-38	33.5-34.5
Steel Dynamics (STLD)	0.00	23-24.5	21.5-22
Salix Pharmaceuticals (SLXP)	0.00	155-160	144-146
Charles Schwab (SCHW)	0.00	29-30	27.5-28
Parexel Corp. (PRXL)	0.00	59-61	55-56
Norwegian Cruise Lines (NCLH)	0.00	35.5-37	33.5-34
Gilead Sciences (GILD)	75.10	101-105	94-96
Canadian Solar (CSIQ)	0.00	35.5-37	32.5-33
Spansion (CODE)	0.00	22-23	20.5-21
Archer Daniels (ADM)	0.00	50-51	47-48

Current Market Outlook


We’re eight and a half months into 2014, and it finally looked as if the choppy (four weeks up, four weeks down, etc.) type of environment had been left behind. But not yet! Just during the past couple of trading days, we’ve seen the market churn near its highs and the sellers come out of the woodwork. We can’t conclude at this point that the market is set to sink for a few weeks; the evidence doesn’t support that. But given that sustained trends have been hard to come by, we also continue to think holding some cash on the sideline and booking partial profits makes sense. We’ll keep our Market Monitor in a “lean bullish” position, but we’ll be watching the upcoming action closely. If the uptrend is OK, buyers should show up soon.

This week’s list has a broader array of stocks and sectors on it, with a few stable stories. Still, we’re going with a true growth stock as our Top Pick—Palo Alto Networks’ (PANW) quarterly report was a barnburner and the stock soared to new highs on record volume. And we think its pullback since looks normal.

Stock Name	Price	Buy Range	Loss Limit
WhiteWave Foods (WWAV)	0.00	34.5-36.5	32-33
United Therapeutics (UTHR)	0.00	118-123	105-107
TriQuint Semiconductor (TQNT)	0.00	19-20	17-18
Gentherm (THRM)	0.00	47-49.5	44-45
Palo Alto Networks (PANW)	236.92	94-98	86-88
Monster Beverage Corporation (MNST)	0.00	86-89	78-80
Southwest Airlines (LUV)	0.00	32-33	29-30
Jazz Pharmaceuticals (JAZZ)	0.00	154-162	145-148
Greenbrier (GBX)	57.73	67-70	63-64
Foot Locker (FL)	0.00	55-57	52-53

Current Market Outlook


September is often a herky-jerky month, with crosscurrents arising as institutional investors position their portfolios for the rest of the year. So far, though, despite some ups and downs in the major indexes, the action has been encouraging—growth stocks are waking up, with some glamour stocks (including a few recent IPOs) tearing up the charts. As we’ve written repeatedly, there are still some dark clouds out there; despite the improved action, we still see many broader, smaller-cap indexes acting poorly, and even the big-cap indexes have hit resistance in recent days. But the action of individual stocks continues to have us leaning bullish.

This week’s list has a few out-of-the-way ideas today, and our Top Pick is one of them—Mallinckrodt (MNK) is a little-known (but well-established) drug firm with huge earnings estimates for the next few quarters. And the stock has been super strong during the past few weeks.

Stock Name	Price	Buy Range	Loss Limit
Western Refining (WNR)	0.00	46-48	42.5-43.5
Mallinckrodt (MNK)	0.00	82.5-85.5	75-76
Health Net (HNT)	0.00	44-46.5	42-43.5
GoPro, Inc. (GPRO)	0.00	57-61	50-51
Green Plains Energy (GPRE)	0.00	43-45	39.5-40.5
Chipotle Mexican Grill (CMG)	773.32	660-685	625-635
Cavium (CAVM)	0.00	52-54	49.5-50.5
Baidu (BIDU)	0.00	218-228	205-208
Banco Bradesco (BBD)	0.00	17-18	16-16.5
Ambarella (AMBA)	52.79	36-38	32-33

Current Market Outlook


You shouldn’t read too much into last week’s action; volume was super-light as most investors were on the beach. We’ll get a clearer read on things this week and next as institutional investors return to their trading desks. Still, taking a step back, the market’s rally from early August is intact, and we’ve seen a continued, gradual improvement among leading stocks, with a few popping higher each week and, importantly, with many moving higher after their initial breakouts. Right now, we’ll keep our Market Monitor where it stands—we continue to lean bullish, but we’re not yet willing to pound the table—but we like the persistently positive action of the past month.

This week’s list features another strong group of stocks that have seen heavy-volume buying of late, a sign big investors are getting in. Our Top Pick is Avago Technologies (AVGO), a chipmaker with a couple of major catalysts that should propel earnings much higher in the quarters ahead.

Stock Name	Price	Buy Range	Loss Limit
Twitter (TWTR)	40.37	47-50	42-43
Skyworks Solutions (SWKS)	0.00	54-56	49-50
Seagate Technology (STX)	0.00	60-62.5	58-59
Petrobras (PBR)	14.78	18-19	16-17
Madison Square Garden (MSG)	298.38	64.5-66	60-61
Macquarie Infrastructure (MIC)	0.00	71-73	66-67
Mobileye N.V. (MBLY)	0.00	41-42	37-38
The Hain Celestial Group, Inc. (HAIN)	0.00	94-98	89-90
Broadcom Limited (AVGO)	266.26	81-85	75-76
Aruba Networks (ARUN)	0.00	20-21	18-19

Current Market Outlook


In the market, it’s the unexpected that you should pay closest attention to. Two weeks ago, the broad market was heading south and the major indexes broke down after a month of distributive action. But since then, the market has zoomed ahead like a rocket, with all the major indexes back above their 50-day lines and many stocks either hitting new highs or racing toward the top of multi-week launching pads. There are still some things to worry about, and we’ll probably get a truer read on things once the big boys come back from vacation next week. But overall, we’re leaning bullish, encouraged by what we’ve seen during the past two weeks.

This week’s list shows a bunch of stocks that have shown big-volume buying of late, a sure sign institutions are sniffing around. Our Top Pick this week isn’t a stock we think is going to double, but rather, one we feel strongly will head higher. It’s Home Depot (HD), the granddaddy of housing stocks, which just busted free from a 15-month base.

Stock Name	Price	Buy Range	Loss Limit
WPX Energy (WPX)	0.00	23-25	20-21
Sensata Technology (ST)	0.00	47-49	44-45
Regeneron Pharmaceuticals (REGN)	512.96	340-350	319-320
Royal Caribbean Cruises (RCL)	0.00	61-63	57-58
Home Depot (HD)	0.00	88-91	83-84
Keurig Green Mountain (GMCR)	0.00	129-135	119-121
F5 Networks, Inc. (FFIV)	0.00	120-122	113-114
Community Health Systems (CYH)	0.00	50-52	46-47
Canadian Solar (CSIQ)	0.00	34.5-35.5	31-32
Akorn (AKRX)	0.00	37-38.5	34-35

Current Market Outlook


The market’s snapback in recent days has been impressive, with the Nasdaq toying with new-high ground, some other indexes popping back above their 50-day lines and many growth stocks acting much better. But not all is bright and sunny—there remain many divergences in the market, and the advance is extremely thin, with just one-third as many stocks hitting new highs today as during the Nasdaq’s initial run at this level in early July. Because the evidence has improved, we’re shifting our Market Monitor toward bullish territory, so you can put some sidelined cash to work, but we advise stepping back into the market slowly.

Regardless of the daily gyrations, we remain encouraged by the many growth stocks showing better action. Our Top Pick this week is LinkedIn (LNKD), a stock that still has resistance to chew through, but has turned the corner after getting cut in half.

Stock Name	Price	Buy Range	Loss Limit
YY Inc. (YY)	0.00	86-88	77-79
Western Refining (WNR)	0.00	43-45	40-41
Tata Motors Limited (TTM)	0.00	43-44.5	40-41
Tesla, Inc. (TSLA)	818.87	250-260	235-240
Medivation (MDVN)	0.00	82-85	77-78
LinkedIn Corporation (LNKD)	0.00	208-218	189-193
Jumei Holdings (JMEI)	0.00	36-38	33-34
Green Plains Energy (GPRE)	0.00	40-42	35.5-36.5
FleetCor Technologies (FLT)	0.00	140-146	132-134
Carter’s (CRI)	0.00	78-81	73-74

After being unable to get off its knees for more than a few hours, the market staged a rally during the past two days, which is always good to see. That said, while the Nasdaq is looking halfway decent (back above its 50-day line today), the other major indexes are still in rough shape, and the broad market is still iffy. Now is certainly not the time to be complacently negative—it’s not like every stock is in tatters and the major indexes are in bear phases. But after the toppy action in July and decisive break two weeks ago, we need to see more than just a couple of mild-volume rallies to put a bunch of money back to work. Thus, you should remain generally defensive as we patiently wait for the bulls to re-take control.

The good news is that many growth stocks (and a few turnarounds) continue to act well—not much money is being made but many names are building solid bases. Our Top Pick this week is Under Armour (UA), an emerging blue chip stock that, while not early in its advance, is in great position after a beautiful base and breakout.

Stock Name	Price	Buy Range	Loss Limit
58.com (WUBA)	0.00	50-51	47-48
Vipshop Holdings (VIPS)	14.25	210-214	200-203
Under Armour (UA)	0.00	66-70	62-63
Tenet Healthcare (THC)	0.00	55-57	51-52
Royal Gold, Inc. (RGLD)	129.66	77-79	72-74
NRG Yield (NYLD)	0.00	51.5-53	49-50
NorthStar Realty (NRF)	0.00	17.5-18	16.5-17
Lithia Motors Inc. (LAD)	146.30	90-92	84-85
Dexcom (DXCM)	421.36	41-43	37-38
Arista Networks (ANET)	0.00	70-74	64-65

Last week’s market break was decisive, as it took down just about every stock and sector. It also came on the heels of a few weeks of funky action, with small- and mid-cap indexes diverging (small-cap indexes are down a few percent on the year!), few growth stocks sustaining their upmoves and lots of choppy action. Could the market come storming back and resume its uptrend? Sure, anything is possible. But the evidence has clearly turned sour, and the odds are that the next bounce or two will be sellable. Thus, it’s best to turn defensive by selling some stocks, holding plenty of cash and limiting new buying to small positions.

That said, you should keep your shopping list ready—this week’s list has many recent earnings winners that continue to hold up well in the face of a weak market. Our Top Pick is U.S. Steel (X). The stock broke out from a solid base last week and exploded higher on enormous volume—and we think it can do well in this challenging environment.

Stock Name	Price	Buy Range	Loss Limit
United States Steel Corporation (X)	0.00	30.5-32.5	27.5-28.5
Western Digital Corporation (WDC)	0.00	98-100	93-94
Skechers (SKX)	0.00	50-52	45-46
Pacira Biosiences (PCRX)	54.85	93-95	84-85
Lam Research (LRCX)	268.47	67.5-69.5	64-65
Facebook, Inc. (FB)	0.00	70-73	66-67
Deckers Outdoor Corp. (DECK)	141.68	87-89	81-82
Chipotle Mexican Grill (CMG)	773.32	640-670	595-602
Celgene (CELG)	0.00	85-87	79-80
Baidu (BIDU)	0.00	200-210	192-194

There are a decent number of warts on this market, including some lackluster action from the broad market, the fact that big-cap indexes have been chopping up and down for the past few weeks, and that small-cap indexes look sick. However, the major trends of the indexes remain up, and most leading stocks, while not tearing up the charts, are still in decent shape. (The many earnings reports last week brought a mixed bag of gaps up and down.) We have our antennae up, especially as more earnings reports push stocks this way and that, but right here the evidence continues to tell us to lean bullish and give our top performers a chance to keep rising.

This week’s list has a bunch of recent earnings winners; if the market is going to continue trending higher, most of these names should do well. Our Top Pick is Steel Dynamics (STLD). We’re usually not big fans of highly-cyclical steel stocks, but STLD just had a big quarter and an even bigger acquisition, with huge earnings forecasts for the next 18 months.

Stock Name	Price	Buy Range	Loss Limit
Under Armour (UA)	0.00	65-70	59-60
Steel Dynamics (STLD)	0.00	20.5-22	18.5-19
Silver Wheaton (SLW)	0.00	25-26	23-24
Royal Caribbean Cruises (RCL)	0.00	59-62	55-56
Patterson-UTI Energy (PTEN)	0.00	36-37	33-34
Polaris Industries (PII)	0.00	143-147	136-137
HCA Healthcare (HCA)	137.60	61-63	56-57
Canadian Pacific Railway (CP)	0.00	190-195	178-180
Cameron (CAM)	0.00	71-73	66-67
Apple (AAPL)	248.94	95-98	89-90

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).

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.

Stocks are cheap, so we’re adding some bargains to the Smart Investing in Turbulent Times portfolios today.

I’m adding BorgWarner to the Buy Low Opportunities Portfolio today, and I encourage you to buy at the current price.

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.