Issues
It’s been seven weeks since the marijuana sector topped, and every day the picture of this correction gets clearer. For example, today saw a rally across the board in the sector, but if you look at the charts, you see it’s really just an inconsequential blip.
Thus, defense remains the watchword for now. In fact, I am selling one stock in this issue, taking profits and freeing up a little more cash.
Long term, however, prospects for the sector remain very bright, as was made clear by our companies’ latest quarterly reports. And of course, we will always hold the leaders of the sector.
Full details in the issue.
Thus, defense remains the watchword for now. In fact, I am selling one stock in this issue, taking profits and freeing up a little more cash.
Long term, however, prospects for the sector remain very bright, as was made clear by our companies’ latest quarterly reports. And of course, we will always hold the leaders of the sector.
Full details in the issue.
It has been a volatile few weeks for the market, with the Nasdaq under consistent selling pressure and more than 7% off its February high, while the S&P 500 hit new all-time highs last week.
Current Market OutlookFirst off, a heads up that our offices will be closed on Friday for Good Friday. So we’ll probably be sending you Movers & Shakers a day early this week.
As for the market, the split environment continues, with many major indexes closing last week near new highs, while the Nasdaq is still languishing beneath its 50-day line. Overall, the song remains mostly the same—growth stocks are mired in a correction (including some big winners from last year that can’t get out of their own way), and while many cyclical-related stocks are holding up well, few are really making much upward progress. There are some pullback opportunities here and there, and to be fair, we are seeing more potential setups in growth land. But at the moment, the market action resembles a kid scribbling on a piece of paper, with jerky movements that don’t persist. Thus, we continue to think you should mostly play it safe, keeping new positions small and holding a generous amount of cash until we see the next sustained uptrend get underway.
This week’s list is mostly turnaround-based, with some strong travel and retail stocks that could be decent entries on dips. Our Top Pick is Urban Outfitters (URBN), which staged a longer-term breakout a month ago, with this first pullback likely buyable.
| Stock Name | Price | ||
|---|---|---|---|
| Alaska Air Group (ALK) | 68 | ||
| Alliance Data Systems (ADS) | 113 | ||
| Callon Petroleum (CPE) | 37 | ||
| Expedia Group (EXPE) | 177 | ||
| Nexstar Media Group (NXST) | 139 | ||
| RH Inc. (RH) | 566 | ||
| SeaWorld Entertainment Inc. (SEAS) | 49 | ||
| Urban Outfitters (URBN) | 37 | ||
| Wayfair (W) | 335 | ||
| ZoomInfo (ZI) | 49 |
The market’s divergent behavior continues, with small growth stocks in particular suffering, but there are still attractive investments, and for investors looking for something in the electric vehicle sector, today’s recommendation is one of them.
As for the current portfolio, I have two sell recommendations, both small, lightly traded stocks that are losing support.
Details inside.
As for the current portfolio, I have two sell recommendations, both small, lightly traded stocks that are losing support.
Details inside.
The market found a little support today, but there’s little doubt that growth stocks remain in a correction and the overall market is coming under pressure. We don’t have a strong opinion on the near-term path, but right now, no real money is being made, so we think less is generally more when it comes to stocks--we’re being patient until this correction finishes up.
That said, there should be some great opportunities on the long side once this correction finishes up, and we spend a lot of space in this issue talking about some indicators we’re watching closely as well as a bunch of names we’re keeping our eye on for potential leaders of the next upmove.
That said, there should be some great opportunities on the long side once this correction finishes up, and we spend a lot of space in this issue talking about some indicators we’re watching closely as well as a bunch of names we’re keeping our eye on for potential leaders of the next upmove.
Despite the current tug of war between cyclical and technology stocks for market leadership, financial stocks are likely the best positioned stock sector in the near term as well as for the rest of the year. They offer a complete package of value, momentum and position in the economic cycle.
Financials tend to thrive in the early stages of an economic cycle, which is where we are now. Financial companies also love rising interest rates. Interest rates are already rising and all but certain to keep climbing amidst a booming economy and trillions of stimulus dollars.
While the financial sector has been the second best performing sector on the S&P YTD, it isn’t as overextended as energy. It’s is only up about half as much so far this year.
In this issue I highlight two fantastic financial stocks for purchase. These stocks offer the very rare combination of value and momentum. It’s a great time to get in cheap ahead of great opportunities to write covered calls for a high income in the weeks and months ahead.
Financials tend to thrive in the early stages of an economic cycle, which is where we are now. Financial companies also love rising interest rates. Interest rates are already rising and all but certain to keep climbing amidst a booming economy and trillions of stimulus dollars.
While the financial sector has been the second best performing sector on the S&P YTD, it isn’t as overextended as energy. It’s is only up about half as much so far this year.
In this issue I highlight two fantastic financial stocks for purchase. These stocks offer the very rare combination of value and momentum. It’s a great time to get in cheap ahead of great opportunities to write covered calls for a high income in the weeks and months ahead.
Despite the market having some bumpiness, March was another great month for the Cabot Profit Booster portfolio as we closed four positions for the following profits:
Current Market OutlookThere were some intra-week ups and downs, but overall, not much changed with the evidence last week—the major indexes mostly closed down 0.5% to 1.5%, which keeps the broad market in an uptrend but also means growth stocks and the Nasdaq are still in corrections and consolidations. With many names now five to seven weeks into new launching pads, we’re looking for definitive signs that the buyers are coming back for growth stocks—and indeed, we have seen some encouraging action during the past two sessions—but it’s too soon to conclude the environment is changing. Thus, we’re sticking with the same stance: Some small buys of strong stocks on pullbacks is fine, but we’d stay relatively close to shore until the bulls prove that the buying pressures are spreading and more solid entry points emerge.
This week’s list has something for everyone, whether you’re looking for different sectors or setups. Our Top Pick is LGI Homes (LGIH), which has reemerged on the upside and could be leading a new group move in the homebuilders.
| Stock Name | Price | ||
|---|---|---|---|
| Aclaris Therapeutics (ACRS) | 28 | ||
| Alcoa (AA) | 30 | ||
| Cimarex Energy (XEC) | 60 | ||
| IAC/InterActiveCorp (IAC) | 248 | ||
| Jack in the Box (JACK) | 115 | ||
| LGI Homes (LGIH) | 142 | ||
| Spirit AeroSystems (SPR) | 48 | ||
| Steel Dynamics (STLD) | 47 | ||
| TripAdvisor (TRIP) | 54 | ||
| Williams-Sonoma (WSM) | 180 |
The market remains in an uptrend and, while the divergences and rotation of recent weeks haven’t been totally erased, our diversified portfolio is doing well and Cabot analysts continue to find attractive investment opportunities.
In our current portfolio, the only change this week is an upgrade of Sea (SE) to Buy.
As for today’s new recommendation, it’s in an out-of-favor sector that has the potential to deliver real upside surprises as the global economy emerges from COVID times.
Details inside.
In our current portfolio, the only change this week is an upgrade of Sea (SE) to Buy.
As for today’s new recommendation, it’s in an out-of-favor sector that has the potential to deliver real upside surprises as the global economy emerges from COVID times.
Details inside.
Updates
Small caps were basically flat over the past week. Since the beginning of May, the S&P 600 Small-Cap Index has made a strong move above prior resistance in the 980 to 990 range. And even with a little dip on Wednesday, the index is sitting right near an all-time high.
There is one change today: from hold to sell at 111.5.
Markets remain volatile, and some stock indexes started to diverge toward the end of last week. The rotation means some stocks are looking stronger than others, but overall the intermediate trend remains up. There are still plenty of yellow flags out there, but the market’s trend remains up, so if you’re underinvested, feel free to do a little buying here.
Remain bullish. Our stance hasn’t changed since last week, as our trend-following indicators are bullish and growth stocks are acting very well in general. Our cash position remains at 20%, though we could do new buying if we see a proper setup.
As early as last summer, I predicted that the S&P 500 would continue rising into early 2018, then experience its overdue correction. I was about a month off on the timing. I was guessing March, but the correction arrived in February. I was right on the size of the downturn, though, almost to the penny. That was a small part technical analysis and a large part luck.
Thursday marked the first day of somewhat significant turbulence in our portfolio in what seems like forever, but indications are that Friday will be back to business as usual, at least for the first part of the day.
Emerging market stocks have had a volatile week, with the iShares EM Fund (EEM) popping above its 25- and 50-day moving averages on Wednesday, but slipping back to the 50-day today.
Two stocks are being sold from the portfolio.
After one strong week in the market, over half the stocks in our portfolio are either at 52-week highs or close to their year-to-date highs. And that’s both good and bad.
Several of our stocks appear capable of beginning a new run-up.
Continue to lean bullish. The market’s rebound today after yesterday’s Italy-induced selloff was very encouraging, and both of our trend-following indicators remain bullish.
There are no rating changes in today’s weekly update.
Alerts
The shares of our first idea today were just initiated with a ‘Buy’ rating at Jefferies. Our second recommendation is a sale of a company whose guidance has faltered.
While this company is straightening out its financial snafu, the shares are trading at bargain levels and analysts are predicting 30% annual growth over the next five years for the company.
Continue to step lightly. The overall market is still positive, but it’s clear that the buyers aren’t in firm control—the environment is news driven and rotational, with few stocks hitting new highs.
Analysts are forecasting annual growth of 43.9% next year for this tech company.
The shares of this transportation company were recently upgraded by KeyBank to ‘Overweight’.
In the broad market, all is well, as all trend-following indicators are positive, and the number of stocks hitting new lows has been minuscule in recent days.
Coverage of the shares of this industrial and energy services provider were recently initiated by Credit Suisse with an ‘Outperform’ rating, and upgraded by Raymond James to ‘Outperform’.
Our first idea is a semiconductor industry company that beat analysts’ EPS estimates by $0.14 last quarter.
This tech company is seeing interest from some big pockets on Wall Street.
Oil prices and shares of oil-related stocks surged this morning after a terrorist attack on Saudi Arabian oil fields shut down about half of Saudi Arabia’s daily oil output.
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.