The market has softened over the past week, and we’ve seen some high-volume selling in former leading stocks, so I’m now pulling back a bit on risk, which is one reason today’s recommendation is a low-risk utility stock.
Technically part of the Safe Income portfolio of Cabot Dividend Investor, this stock pays a healthy 2.6% yield and it has decent upside potential as well.
As for the current portfolio, we still have some stocks hitting new highs, but we’ve also got some showing renewed weakness, so today I have two sell recommendations. Details in the issue.

Current Market Outlook


The lagging action of the broad market finally caught up with the major indexes last Friday, with everything taking a big hit and, more important, small- and mid-cap indexes falling below their 50-day lines. Right now, most of the evidence remains positive, so we remain mostly bullish. But it’s fair to say our antennae are up and the next few days will be important—the intermediate-term trend is basically on the fence (another bad day could turn it down) and many leading stocks have been running for many weeks and are extended to the upside. Bottom line, we’re sticking with our current stance, but be sure to honor your stops and loss limits, take partial profits where available and, on the buy side, be discerning and aim to buy on weakness.
The good news is we’re seeing a decent amount of strong stocks that hit new highs recently and are pulling back normally. This week’s list is full of them, and our Top Pick is iRobot (IRBT), a stock with a solid growth story and a good-looking setup on the chart.

Stock Name	Price	Buy Range	Loss Limit
Forescout (FSCT)	41.92	41.5-43	37-38
Huazhu Group (HTHT)	30.89	38-40	34-35.5
Invitae (NVTA)	32.06	22.5-24.5	19-20
iRobot (IRBT)	103.17	118-122	107-110
ProPetro (PUMP)	23.30	20.5-21.5	18.2-18.9
Shopify (SHOP)	585.00	194-200	178-182
Sleep Number (SNBR)	35.80	45-47	41-42.5
StoneCo (STNE)	27.54	37-39.5	31.5-33
Wheaton Precious Metals (WPM)	34.43	23.5-24.5	21.5-22
Wix.com (WIX)	302.53	116-120	107-110

We’ve seen a bit of turbulence in international emerging markets with speculation about trade talks and the perceived slower growth in China and Europe.

Apparently, institutional investors are underweighting Europe so we go against the grain for our new recommendation. This is a great brand that offers a nice combination of high quality, value price of entry, strong growth in emerging markets and a 7.8% dividend yield.

The market remains in an uptrend, and many of our leading stocks have been hitting new highs, even though the major indexes haven’t—yet. Thus I continue to recommend that you be heavily invested in a diversified portfolio of stocks—growth, value, dividend-paying and more. Someday, it will become appropriate to be more cautious, but that time is not now.
Today’s stock is a young technology stock with great growth prospects as it supplies its customers with the tools needed to secure digital operations of all types and sizes. It’s an aggressive, high-risk investment, but the trend is strongly up.
As for the current portfolio, six of our stocks have hit new highs in recent days, so we’re making great progress. The only changes this week are two downgrades from Buy to Hold. Details inside.

Current Market Outlook


The market’s snapback last week was very encouraging, with the major indexes and most leading stocks leaping back toward (or in some cases, out to) new highs. As we wrote last week, there are a couple of short-term issues to keep an eye on—namely, we saw some non-confirmations, as small- and mid-cap indexes didn’t bounce that much and far fewer stocks hit new highs even as the S&P and Nasdaq did. At this point, that action is more descriptive than predictive; it does raise the odds that the market could throw us another curveball over the next week or two, but it’s not something we’d necessarily trade off of. Big picture, we remain mostly bullish, though for new buying, we still favor entering on weakness.

This week’s list is just about all tech, med tech and biotech, and we’re happy to see some improved setups after the past two to three weeks of action. Our Top Pick is Zendesk (ZEN), which looks like it wants to continue its breakout from a few weeks back.

Stock Name	Price	Buy Range	Loss Limit
Amarin (AMRN)	14.06	18-20	16.5-17.5
Cree, Inc. (CREE)	67.96	54.5-57	49.5-51
Exact Sciences (EXAS)	116.91	88-92	80-82.5
iQIYI (IQ)	0.00	25.5-27.5	22.5-23.5
Paycom Software (PAYC)	0.00	176-183	159-163
Q2 Holdings (QTWO)	80.81	66-69	60.5-62
Ubiquiti Networks (UBNT)	170.11	137-142	125-128
Ulta Beauty (ULTA)	331.95	326-343	290-300
Xilinx (XLNX)	134.50	119-125	108-112
Zendesk (ZEN)	82.19	79-83	72-73.5

After a well-deserved pullback during the past two weeks, the strong action this week from most major indexes and leading stocks is a good sign. Short-term, further wobbles are certainly possible after the strong nine-week advance off the market’s major bottom, but big picture, we remain very bullish and heavily invested.
In tonight’s issue, we write about a couple of simple tips for handling some off-the-bottom names in last year’s high-fliers, as well as reviewing our nine stocks and a couple others that look tempting.

Happy spring! The Bradford Pear trees and daffodils are beginning to flower here in Tennessee—one of my favorite times of the year!

And this year, with the market continuing to “bloom,” the unemployment rate steady at 3.8%, retail sales rising, and the housing market healthy, it sounds like spring is ushering in a happy period. Both investors and advisors agree, as you’ll see in our bullish barometer and Market Views.

The market remains in an uptrend, though the correction that started last week may do a little more damage. If so, try to take advantage of it, remembering that buying low is the goal.
Today’s stock is a name you know—a name all Americans know—and I think it’s a good buy here after correcting 39% last fall. Crista Huff is the Cabot analyst who recommended it most recently, in part on fundamental grounds, and my reading of the chart confirms her conclusion.
As for the current portfolio, we continue to make great progress, but there’s always room for improvement. The only changes this week are two upgrades from Hold to Buy. Details inside.

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.

Analysts look for this tech company to grow by triple digits over the next five years.

Two of our stocks reported beat-and-raise quarters.

Our first idea today is a Chinese internet company and our second recommendation is a sale of a previous idea with recent mediocre numbers.

Our second recommendation is a sale of a previous idea with recent mediocre numbers.

Three of our stocks have reached their target price and should be sold. Another of our stocks rose 10% in after-hours trading on Friday as news stories cited merger talks.

A better economy is boosting the prospects of this food company, with analysts forecasting double-digit annual growth for the next five years.

Earnings reports from three of our stocks and ratings changes on two stocks.

This fund has returned 32.28% to its investors so far this year, according to Morningstar.

One of our stocks moves from Buy to Hold, plus earnings reports from four of our stocks.

Our first recommendation is a tool company who is being feted on Wall Street, with upgrades (Zelman, to ‘Buy’, and Morgan Stanley, to ‘Overweight’; earnings beat ($0.12), and 21 analysts raising their earnings forecasts in the past 30 days.

Our second recommendation is a sale of a previous idea.

This cyclical company has beaten analysts’ estimates for the past four quarters, and four analysts have raised their 2017 earnings estimates for the company in the past 30 days.

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.