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
It’s not often that we discuss currencies in the Cabot Turnaround Letter, but given the persistent relative strength of the U.S. dollar right now, I think it’s imperative that we address it—mainly because of how it will likely impact our portfolio holdings going forward.
The top haven asset for the first half of 2026 wasn’t gold, U.S. Treasury bonds or the Japanese yen.
The top haven asset for the first half of 2026 wasn’t gold, U.S. Treasury bonds or the Japanese yen.
After spending much of the year leading the market higher, small caps have finally run into a little turbulence. Through midday today, the S&P 600 Index is down 1.8% from last Thursday’s close, roughly in line with the S&P 500’s 1.9% decline.
That said, it’s important to keep the recent pullback in perspective. Small caps remain the market’s clear leader in 2026, with the S&P 600 up 20.2% year to date versus an 8.1% gain for the S&P 500.
That said, it’s important to keep the recent pullback in perspective. Small caps remain the market’s clear leader in 2026, with the S&P 600 up 20.2% year to date versus an 8.1% gain for the S&P 500.
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.
High-flying AI-related stocks are facing a high bar of performance. Even what normally would be considered staggering growth is met with a yawn. The backdrop of the Middle East conflict and almost $100 oil is not helpful.
The Philadelphia Semiconductor Index (SOX) has outperformed the S&P 500 by 57% this year, even after a sharp correction. This is basically a macro trade, and there are few industries as cyclical, or as capital-intensive, as semiconductor manufacturing.
The Philadelphia Semiconductor Index (SOX) has outperformed the S&P 500 by 57% this year, even after a sharp correction. This is basically a macro trade, and there are few industries as cyclical, or as capital-intensive, as semiconductor manufacturing.
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 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.
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.
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.
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.
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 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.
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.
Alerts
I’m adding E*Trade Financial (ETFC) to the Growth Portfolio today.
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 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.