Issues
Current Market OutlookThe market’s rebound continues, and encouragingly, we’re seeing some power develop—stocks have shown two major accumulation days (one the day after Christmas, when the Dow rose 1,000 points, and the other last Friday after soothing words from the Fed) and breadth has been terrific. We can’t say we’re out of the woods yet; even after today’s rally, the intermediate-term trends of the major indexes are clearly down (all indexes are still near their 25-day moving average, in fact). But even so, there’s no denying the rally is off to a good start, and to this point, the market and potential leading stocks are doing what they “should” to carve out a sustainable low. You should still keep plenty of cash on the sideline, but we’re not opposed to adding some small positions in potential leaders and seeing how things progress. We’re nudging our Market Monitor up a notch.
This week’s list has a broad mix of stories and charts, but all of them look like they want to head higher if the market cooperates. Our Top Pick is Chipotle Mexican Grill (CMG), which, after a massive shakeout, looks primed to continue its turnaround.
| Stock Name | Price | ||
|---|---|---|---|
| AZUL (AZUL) | 29.41 | ||
| Buenaventura (BVN) | 16.23 | ||
| Chegg (CHGG) | 74.21 | ||
| Chipotle Mexican Grill (CMG) | 773.32 | ||
| Etsy (ETSY) | 112.97 | ||
| Incyte Corporation (INCY) | 76.98 | ||
| Kirkland Lake Gold (KL) | 51.30 | ||
| Okta, Inc. (OKTA) | 148.41 | ||
| Telephone & Data (TDS) | 35.36 | ||
| Workday (WDAY) | 194.88 |
Today’s stock is another specialized medical device company. It plays in the highly specialized market for organ transplant surveillance. It has all the attributes of a good stock—it’s expanding its end market potential with new products, is almost profitable, and the chart looks great!
Believe it or not, there are some legitimate reasons for hope as 2019 begins--the market’s December meltdown produced some historic extremes in sentiment and breadth, readings that have almost always occurred near the start of a bottoming process. If all goes well, the market will work in the weeks ahead to bang out a sustainable low, while the best stocks set up in pole position for the next advance.
I don’t see much downside risk for the market here but I do see a lot of upside, though the challenge is knowing which stocks are going to lead the next advance. Happily, one of the advantages of investing in a basket of stocks recommended by Cabot Stock of the Week is that you can own an extremely well diversified portfolio, which means that as the market’s bounce continues, you have a good chance of owning some of the leaders.
Amidst a bearish stock market, we’re adding one big-dividend stock to our portfolios today. Lacking much stock market excitement and lower-risk near-term capital gain opportunities, I decided to post some corporate news and price action on a couple stocks—not featured in our portfolios, but still of interest to many investors.
It is useful (if also humbling) to review how our prior year’s forecast turned out.
In this issue, we take a look back - and a look forward - as we assess our moves.
In this issue, we take a look back - and a look forward - as we assess our moves.
Current Market OutlookThe first three weeks of December were a complete disaster for the market, with most major indexes falling 16% to 19% during that time. The good news is that, after some historic oversold extremes (we saw three straight days of more than 1,000 stocks hitting new lows on both the NYSE and Nasdaq!), stocks have finally begun to bounce; ideally this upmove lasts for at least a couple more weeks and gives the market a low to work from, while some new leadership takes pole position for the next sustained uptrend. Still, as we have all year, we advise just taking things as they come—right now, the trends of the major indexes and the vast majority of stocks are pointed down (just 15% or so of stocks are north of their 200-day lines), so we’re sticking with a defensive stance and waiting patiently for the bulls to make a stand.
That said, we’re still seeing a good number of resilient ideas, including many with great growth stories. If you’re looking to nibble, our Top Pick this week is Planet Fitness (PLNT), which has a unique, independent growth story that continues to attract big investors.
| Stock Name | Price | ||
|---|---|---|---|
| Alteryx (AYX) | 132.78 | ||
| Atlassian (TEAM) | 182.16 | ||
| Broadcom Limited (AVGO) | 266.26 | ||
| Crocs (CROX) | 0.00 | ||
| Deckers Outdoor Corp. (DECK) | 141.68 | ||
| Elastic (ESTC) | 86.17 | ||
| Planet Fitness (PLNT) | 0.00 | ||
| ServiceNow (NOW) | 341.86 | ||
| Tencent Music Entertainment (TME) | 18.41 | ||
| Zscaler (ZS) | 126.22 |
Like the broad market, many of the stocks in the portfolio have had a rough time over the past month, as investors have been spooked by fears of inflation and trade wars. But as the end of the year approaches, so does the incentive to take losses for tax purposes, and my optimistic reading is that most of the marijuana stocks have bottomed—though it may take a while for uptrends to be reestablished
Updates
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.
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.
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%.
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.
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.
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.
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.
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.
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.
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.
Alerts
This business services company beat earnings estimates by $0.17 last quarter. The shares just crossed over their 50-day moving average in August, a bullish indicator.
This cosmetics company beat analysts’ estimates by $0.08 last quarter and 22 analysts have increased the company’s earnings forecasts for this year.
This mobile restaurant platform is catching Wall Street’s attention (upgrades from Morgan Stanly and Cowen) and analysts expect double-digit growth for the next five years.
This stock fund is changing its strategy to include stocks with higher earnings yields.
This pharmacy benefit management company beat analysts’ estimates by $0.03 last quarter. Three analysts have increased their EPS estimates for the company in the last 30 days.
In addition to Goldman’s upgrade of this auto manufacturer’s stock, these firms also raised their ratings: Barclays, to ‘Overweight’; Bank of America, to ‘Neutral’ and Kepler Cheuvreux, to ‘Buy’.
As a result of the selloff in financial stocks this week, we’re selling one stock and moving another to Hold. I also include a special update on another holding that issued a hurricane-related business update on Wednesday morning.
This company beat analysts’ EPS estimates by $0.38 last quarter.
Our first idea is a low-priced fund whose top five holdings are UnitedHealth Group Inc (UNH, 4.97% of assets), Seagate Technology PLC (STX.SI, 2.88%), Best Buy Co Inc (BBY, 2.82%), Ross Stores Inc (ROST, 2.80%) and Metro Inc (MTRAF.TO).
This is a sell of a previous recommendation.
This is a sell of a previous recommendation.
Jim Cramer is also forecasting a “lift across the board” for home building companies, including this one.
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.