Current Market Outlook


Just over a week ago, it looked like the market’s intermediate-term trend was going up in smoke as cyclicals cracked and growth stocks remained hit or miss. But, frankly, last week’s action was one of the more impressive few days we’ve seen in a while—most indexes roared back, we saw more stocks (growth and otherwise) pop on excellent volume and even some hard-hit areas rebounded nicely. To be clear, we don’t think the market is out of the woods; many cyclical names still look iffy, and it’s not like there are dozens of great-looking breakouts to sink your teeth into (yet). Thus, we still think picking your spots is important, but it’s also true that we’re seeing more good-looking patterns than we have in a while. We’re nudging up our Market Monitor to a level 7.

This week’s list features many of the names that have seen some persistency and power of late. Our Top Pick is Dynatrace (DT), which appears to be emerging from a big-picture, year-long consolidation.

Stock Name	Price	Buy Range	Loss Limit
Alnylam Pharmaceuticals (ALNY)	166	162.5-167.5	149-152
American Eagle (AEO)	37	35.5-37.5	32-33
CommScope (COMM)	21	20.5-21.5	18.5-19
Deckers Outdoor Corp. (DECK)	382	370-385	340-345
Dynatrace (DT)	60	57-59	51.5-52.5
Natera (NTRA)	117	113-116	102-104
Nutanix (NTNX)	39	37-38.5	32.5-33.5
Shopify (SHOP)	1495	1450-1500	1310-1340
Upwork (UPWK)	57	53.5-56	47-48.5
Vista Outdoor Inc. (VSTO)	45	42-44	37.5-38.5

Note: Because of the Independence Day holiday, next week’s issue of Cabot Stock of the Week will be published on Tuesday July 6.

The bull market rolls on, and our portfolio continues to deliver, so I continue to recommend that you be heavily invested in stocks that help achieve your investing goals.



Today’s featured stock is a young and small medical stock that few investors have heard of, but it’s growing fast and the stock is going the right way!



As for the current portfolio, we’re parting company with super-safe Realty Income (O), mainly because something’s got to go.



Details inside.



Also, I hope you’ll join me for the 9th Annual Smarter Investing, Greater Profits Online Conference, August 17-19. We have an incredible line-up of experts ready to share their best picks.

The S&P 500 has now gained 90% since its closing low in March 2020. This alone has made investors a bit cautious but all indications are that we are still in a bull market. Explorer recommendations did well this past week and today we go back to China for a new idea that many of you will know.

Despite last week’s overreaction to the Fed, the market will likely continue sideways for a while for two reasons. One, the market indexes had to take a breather after a massive 90% move higher from the pandemic lows. Two, investors look ahead and can’t decide what will drive the market six months from now after the economy slows and comparisons get tough.

In a sideways market, income is at a premium. Income is the only game in town when stock prices aren’t rising. Dividends roll in regardless of near-term market gyrations. Covered calls greatly enhance that income.



In times like this, a portfolio geared towards high income can provide strong returns while the overall market languishes. In this issue, I highlight two new covered call opportunities that will enable you to ring the register while the market wallows.

Monday, shortly after the market open, we exited the stock components of three of our June covered call positions (FNKO, IGT, RRC). With these sales, here are our profits for all four June positions:

Current Market Outlook


There are definitely some positives among the action out there—growth stocks, for instance, have continued their rally, with many “old” winners finally showing some power in both volume and price (including some names that have poked out to new highs). That said, the overall action in the market remains hectic: Cyclical stocks have cascaded for the most part while growth has ramped, with most major indexes we track now below key support. Moreover, on a daily basis rotation remains intense (like today), with stocks and sectors getting whipped around depending on what’s in favor on a given day. Again, it’s not bearish per se, but the environment is like Jell-O wobbling on a plate, making it tough to pinpoint entries and hold onto stuff. We’re OK with some buying, but until more investors row in the same direction, you should keep it smaller than normal and generally aim for dips.

This week’s list looks like 2020 all over again, with lots of technology and growth earnings spots. Our Top Pick is HubSpot (HUBS), which showed top-notch relative strength during the growth stock correction and has now started to power ahead.

Stock Name	Price	Buy Range	Loss Limit
10X Genomics (TXG)	198	189-198	172-175
Arrowhead Pharmaceuticals (ARWR)	90	86-90	74-76
Atlassian (TEAM)	267	256-263	235-239
Bill.com Holdings (BILL)	181	176-182	155-159
Biogen (BIIB)	381	370-385	325-335
Bonanza Creek Energy (BCEI)	48	45.5-47.5	40.5-41.5
HubSpot (HUBS)	575	560-580	505-515
Scientific Games (SGMS)	76	71-74	62-64
Sprout Social (SPT)	90	85-88	74-76
Zscaler (ZS)	216	207-214	186-190

The bull market rolls on, and our portfolio continues to deliver, so I continue to recommend that you be heavily invested in stocks that help achieve your investing goals.

Today’s featured stock is making a repeat appearance, because we lost it on a shakeout earlier this year and I think it’s worth trying again.



As for the current portfolio, Tesla (TSLA) and Trulieve (TCNNF) are upgraded to buy, but we’re selling Coca Cola (KO), mainly because something’s got to go.



Details inside.

Growth stocks continue to slowly repair the damage, with the evidence rounding into form. However, the trick of actually making (and keeping) much money remains very tough — few stocks are showing persistent moves, and those that rally for two to three weeks tend to back off. Maybe that will change—today was certainly a plus for growth stocks — but the point is the environment remains tricky and challenging.

In the Model Portfolio, we’ve been riding things up and down of late, but tonight are holding what we have. There are a couple of names we’re watching that we would like to own, but again, these have ramped up in recent days so we’ll wait for a little shaking and baking. Open up for all of our latest thoughts.

In the fourth quarter of 2018 it felt like we all finally succumbed to some festering illness that landed us in the intensive care unit. Thus far, the beginning of 2019 has the feeling of a trip home from the hospital and the beginning of the healing process.

It’s time to do a little buying. The market’s trends are still pointed down, so we still think going slow and stepping lightly makes sense. We are adding three new half positions to the portfolio tonight and keeping our cash position around 67%.

Don’t look now but the market is in rally mode and has been for a couple of weeks. We will continue to favor safer, more recession-resistant stocks and investments for the foreseeable future but the selloff may be over. One rating change as we move a position from buy to hold.

This will be a busy week for Wall Street as analysts speak with the companies within their stock purviews and write updated research reports. I expect to relay lots of changes in consensus earnings estimates in next week’s update.

I think it’s fair to say most market observers were not surprised that stocks retreated in late-2018.

The MSCI Emerging Market (EM) basket of 25 emerging market countries pulled back 15% in dollar terms, the Japan market was down 12%, and China’s Shanghai Composite index got clobbered, falling 25%. India ended the year down only 4.2% thanks to pro-business economic policies and an infrastructure boom.

Down markets are a fact of life in investing. Don’t fear them. Embrace them. They offer short term angst and long term bliss for those bold enough to take advantage. With today’s update, just one rating change but overall we’re in good shape.

I’m first coming to you in the midst of an awful market. We are unofficially in a bear market (down 20% from the high).

Remain defensive. Stocks are finally mustering a bounce today, though after the market’s meltdown of recent weeks, the intermediate- and longer-term trends remain firmly down.

As we finish 2018, let’s recap some timely investing and economic topics.

One big picture thing worth mentioning: We’ve all seen various data points about just how bad this market is and how it’s “the worst” in this dimension or that. All of this stuff is just saying what we know—the market stinks and is breaking a bunch of undesirable records.

The good news is that 2019, which started off so well for the cannabis sector but is ending so poorly, is nearing the finish line. The bad news is that we still have three weeks to go, technically, though many of those days will see light trading volume.

In the past 30 days, 13 analysts have increased their earnings estimates for this cloud computing company.

One of the portfolio stocks reported third-quarter results.

The market remains in a normal consolidation phase, and most of our stocks look fine.

The five largest holdings of this ETF are: Apple Inc (AAPL, 3.38% of net assets), Microsoft Corp (MSFT, 3.18%), JPMorgan Chase & Co (JPM, 3.04%), Johnson & Johnson (JNJ, 2.82%), and Verizon Communications Inc (VZ, 2.69%).

Coverage of the shares of this building supply company was recently initiated at Deutsche Bank and Buckingham, with a ‘Buy’ rating, and five analysts have raised their EPS estimates for the company over the past 30 days.

Crista continues to believe this stock is greatly undervalued.

Three analysts have recently increased their EPS estimates for this e-commerce company.

This portfolio stock shares are down 7% as investors worry about a potential pharmaceutical competitor.

Our second recommendation is profit-taking due to a buyout.

Our first idea is an oil company that is expected to grow more than 13% this year and has a current annual dividend yield of 5.55%, paid quarterly.

Not a lot has changed since last week’s issue—overall, the cannabis sector remains in a correction—but there are a few stocks worthy of an update.

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.