After a fairly quiet March, emerging markets came to life this week after the revelation of unexpectedly strong manufacturing growth in China, progress on trade talks and lower interest rates—which always help emerging markets.

This week we have a new recommendation that helps power emerging market consumer spending, a key driver as these markets transition from exports to consumer spending to fuel their growth.

Here in Tennessee, the Bradford pears, forsythia, and daffodils are in bloom. And so is the market! We had a good market month, with the Dow Jones Industrial Average gaining more than 500 points since our last issue.

The economy continues to be strong, with unemployment low and housing still favorable. And sentiment, as you’ll see in our Market Views, remains bullish overall.

The market’s weakness didn’t last long; the indexes snapped quickly back, though breadth is not quite as good as previously. Still, the market strength restores my confidence that we’ll see higher highs in the months ahead, and I recommend that you invest accordingly.
For today’s recommendation we swing back to the aggressive side. Remember those promises of DNA-based personalized medical treatments from a decade ago? We’re getting closer and today’s recommendation is a leading force in the field.

Various portfolio companies are in the midst of changes and volatility related to a spin-off, a name change, the Boeing Max 737 problem and the ongoing effects of Midwest flooding. In addition, U.S. stock markets decided that they’re ready to rise again, so I itemized several opportunities in this issue ranging from blue chip stocks to a microcap stock.

I expect 2019 to continue being a year that offers great opportunities for stock traders. While my investment style of identifying undervalued growth stocks is not conducive to day trading, investors will likely find lots of opportunities to achieve capital gains of 10% or more over several-month periods.

While it may seem that all the stocks in the Dow Jones Industrial Average may move together, there are always those laggards that can’t catch up. This creates opportunity for the turnaround investor.

In this issue, we provide our thoughts on the laggards, highlighting those with promising appeal as well as some that might best be left alone for now.

Current Market Outlook


The major indexes have scored a couple of solid gains, though we’re seeing plenty of crosscurrents underneath the surface; this could be the start of a rotation out of growth, but it may just be normal action that’s often seen around quarter-end (as hedge funds, most of which get paid quarterly, book profits and reposition themselves). Just looking at the evidence, the push higher has kept the intermediate-term trend pointed up, and while some leaders have hit potholes, most remain in uptrends and have avoided abnormal action. Overall, then, we remain mostly bullish, though we’ll keep our Market Monitor at a level 7 for a bit longer to see if this recent push (a) continues and (b) is led by leading, Top Ten-style stocks.

This week’s list has many familiar names from earlier this year—a good sign, in our view, that leading stocks are continuing their uptrends. Our Top Pick is Ionis Pharmaceuticals (IONS), a unique drug firm with a powerful chart. Try to buy on dips.

Stock Name	Price	Buy Range	Loss Limit
Armstrong World (AWI)	88.01	77-79	70.5-72
Array Biopharma (ARRY)	46.35	23-24.5	20.5-21.5
Carvana (CVNA)	82.90	56-59	48-50
Ionis Pharmaceuticals (IONS)	73.34	77-80	69-71.5
Paylocity (PCTY)	97.34	87-90	79-81
ServiceNow (NOW)	341.86	240-248	220-223
Survey Monkey (SVMK)	19.97	17-18	15.3-16
TAL Education (TAL)	50.49	34-36.5	31.5-32.5
TransDigm (TDG)	599.41	443-458	415-425
Universal Display (OLED)	187.54	150-155	134-137

Two weeks ago, we pointed out some developing divergences in the broad market, and in the short-term, those have caught up to the big-cap indexes and growth stocks, which have generally fallen off in recent days, including a couple of breakdowns. In the near-term, the outlook is still murky, so we advise stepping carefully, though big picture, we remain bullish and, hence, heavily invested.
In the Model Portfolio, we’ve placed some stocks on hold and, this week, sold one stock as it broke down on huge volume. We’re holding 18% cash now, though should the market and growth stocks firm up, we’ll be looking to put that to work in stronger leaders.
In tonight’s issue, we dive in deeper into all our thoughts on the market and our stocks, as well as look at prior environments after blastoff signals to see what’s normal and what’s not (hint: so far, we’re still in good shape).

CBD is hot, and acquisitions in the cannabis industry seem to occur daily, but the biggest marijuana stocks are cooling, at least for a while.

Long-term, however, I remain very bullish on both the companies and the stocks in the industry and am truly enjoying staying on top of the developments.

The gains so far this year, in both the sector and the portfolio, remain spectacular, but they won’t continue; I guarantee that corrections and volatility will come. And I also guarantee I’ll give you my best ideas on how to deal with them.

In this issue I highlight a company that has been investing in infrastructure assets all over the world. The stock has doubled the return of the S&P 500. And business will only get better.

After two near-record-setting months, stocks are encountering their first real turbulence since March. It’s no surprise.

While stocks go up an average of 10% a year, they rarely do so in a straight line. And after the S&P 500 rallied nearly 20% in April and May and the Nasdaq shot up nearly 30%, a pullback of some kind – or possibly even a true correction – was to be expected. It seems it’s happening all at once.

Stocks look set to enter the summer near all-time highs, but leadership has narrowed, volatility has ticked up, and there’s been renewed scrutiny on the AI trade and valuation concerns in some of the market’s biggest winners.

At the same time, the macro backdrop remains a mix of resilience and intermittent turbulence. While economic data continues to hold up, energy prices remain elevated due to the ongoing Iran conflict – which has no end in sight – keeping upward pressure on inflation and yields.

Tech, commodity, AI, and Explorer stocks struggled this week as concern over capital expenditures increased. Mideast tensions intensified and inflation numbers came in yesterday at their highest rate in over three years, fueled by rising energy costs. The combination of anticipated higher interest rates and rising bond yields impacted the price of precious metals, with gold sliding below $4,200 an ounce and silver falling below $64 an ounce.

Stocks look to enter summer near all-time highs, but leadership has narrowed and volatility has ticked up thanks to renewed scrutiny on the AI trade and open-ended questions about valuations in some of the hottest areas of the market.

There’s also been more focus on the evolving macro landscape, which features a resilient U.S. economy but stubbornly high energy prices due to the ongoing Iran conflict, and somewhat elevated yields. We’re now looking at a higher likelihood of a Fed rate hike, with the odds of a hike by December now well over 50%.

The high-flying AI stocks got crushed on Friday. But those stocks started this week higher. Where do we go from here?

The technology-heavy Nasdaq index fell 4% on Friday, and the S&P 500 fell for the week for the first time in 10 weeks. A couple of things spooked investors. The AI trade turned sour after Broadcom (AVGO) reported earnings that included slightly lower revenue projections for its AI chips than were expected. Also, a blowout jobs report strengthened the case for a Fed rate hike by the end of the year.

A major economic narrative that took shape in recent years was the decline and (presumptive) inevitable death of the so-called “petrodollar,” as a growing number of countries diversified their foreign exchange reserves away from the U.S. dollar and toward gold and alternative currencies like the Chinese yuan.

WHAT TO DO NOW: The overall market remains in good shape, though we are seeing some exuberance on the upside and also a few leaders begin to act sloppy. Near term, then, it’s still a coin flip as to what comes, but the vast majority of intermediate-term evidence remains bullish. In the Model Portfolio, we took partial profits in Marvell (MRVL) earlier this week; tonight, we’re buying a half-sized position (5% of the account) in Bloom Energy (BE), which is extremely volatile but also strong and coming off a few weeks of rest. Our cash position will now be around 28%.

This market just keeps going higher.

Sure, there’s uncertainty out there. The war isn’t over. Inflation and interest rates are still too high. But stocks didn’t get the memo. After a strong April, the S&P 500 rose 5% and the Nasdaq soared 8% in May. The indexes are up 20% and 30%, respectively, since March 30 and are continuing to make new highs this week.

Despite the negative headlines and volatility, stocks just keep going.

After a strong April, the S&P 500 rose 5% and the Nasdaq soared 8% in May. The indexes are up 20% and 30%, respectively, since March 30. It’s also worth noting that despite the ongoing Iran war, the price per barrel of West Texas Intermediate crude oil closed down 17% for the month of May.

This week’s Memorial Day observance marked the traditional onset of the summer vacation season for millions of Americans. It’s a time of traveling, sightseeing, picnics and parties. It’s also the peak season for enjoying cold, carbonated beverages like soda pop and energy drinks.

With this dynamic in play, I think it’s time that we give some attention to our holding in PepsiCo (PEP), which is entering a critical period of its sales year.

On the heels of a miserable March and a euphoric April, I wrote several weeks ago in this space that I thought May would determine which direction the market is truly headed, at least in the intermediate term. We have our answer, and it’s a definitive “up.”

All three major U.S. indexes are touching record highs as of this writing, with the S&P 500 up 4.3% in May, the Nasdaq up 7%, and the slower-moving Dow Jones Industrial inching higher by 1.6%. That’s despite the ongoing Iran war and the accompanying sky-high oil and gas prices, escalating inflation, bond yields at multi-year highs, possible Fed rate hikes later this year, and record-low consumer sentiment.

Stocks have largely shrugged off this week’s dust‑ups in the Middle East as investors continue to bet on a near‑term memorandum of understanding (MOU) that would reopen the Strait of Hormuz and push bigger sticking points between the U.S. and Iran down the road.

Yields have cooled off this week and continue to do so this morning, thanks to a slightly lower‑than‑expected core PCE reading. April core PCE rose 0.2% month over month, below both March’s 0.3% reading and consensus, giving the Fed some breathing room as policymakers weigh the competing forces of inflation and growth.

Cummins, which makes engines for trucks, heavy machinery and other industrial and transport applications, fell 4.6% on Friday after Tesla unveiled its new electric semi-truck, increasing competition in the long-haul trucking market. Cummins also held an analyst day on Friday, but apparently failed to impress.

This wood products company beat analysts’ estimates by $0.12 last quarter, and four analysts have increased their EPS forecasts for the company in the past 30 days.

Eight analysts are forecasting a rise in EPS for this outsourcing company.

Eight analysts have raised their EPS forecasts for this outdoor apparel company in the past 30 days.

The top five holdings of this fund are Adidas AG (ADDDF.DE, 5.39% of assets); Adobe Systems Inc (ADBE, 5.34%); CBOE Global Markets Inc (CBOE, 5.08%); Caterpillar Inc (CAT, 4.90%) and Amgen Inc (AMGN, 4.88%).

One of our stocks reported a solid quarter this week that prompted a fresh wave of buying and drove the stock up over 10% yesterday.

Three analysts have increased their EPS estimates in the past 30 days for this spin-off.

Rumors are racing about that Hasbro (HAS) might attempt to purchase Mattel (MAT). There are absolutely no details to discuss at this time. Considering that these are the two largest U.S. toy companies, I would anticipate a serious amount of antitrust drama surrounding a potential merger.

Although this gold miner is experiencing operations difficulties at one of its locations, Wall Street is bullish, forecasting growth of more than 34% annually over the next five years.

Although competition is beginning to cut into this electric vehicle’s numbers, the market in China continues to be strong, with new energy vehicle (NEV) production forecast at 700,000 vehicles this year.

Although this pharma company is still in the loss stage, rising forecasts and new analyst coverage are pushing the shares up.

Three earning updates - Two Holds and a Sell.

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.