Issues
Current Market OutlookAs expected, we’re seeing a ton of day-to-day volatility in the market—last week the Nasdaq spiked higher by nearly 300 points in less than three days, only to give it all back since Thursday. But net-net, we really haven’t seen any change in the market’s picture, as the intermediate-term trend is pointed down for most indexes, sectors and individual stocks. The good news is that, as expected, earnings season has revealed a nice crop of potential leaders that are acting resiliently—this week’s list has a bunch of them to consider. But remember that, in a weak market, good-looking stocks can go bad in a hurry, which is why we advise holding a bunch of cash, and if you buy, you should keep positions very small and look to enter on weakness. We’re keeping our Market Monitor at a level 4 in today’s issue.
This week’s list is chock full of earnings winners, which, encouragingly, are generally holding up well despite the market’s latest slide. Our Top Pick is Etsy (ETSY), whose growth is picking up steam and stock is acting great.
| Stock Name | Price | ||
|---|---|---|---|
| Alteryx (AYX) | 132.78 | ||
| BioTelemetry Inc. (BEAT) | 58.58 | ||
| CyberArk (CYBR) | 111.74 | ||
| Dexcom (DXCM) | 421.36 | ||
| Etsy (ETSY) | 112.97 | ||
| Genomic Health (GHDX) | 64.42 | ||
| Horizon Therapeutics (HZNP) | 49.89 | ||
| The Mosaic Company (MOS) | 29.22 | ||
| Twilio (TWLO) | 183.39 | ||
| Ulta Beauty (ULTA) | 331.95 |
Whew! I’m glad to see the back of October, aren’t you? Last month lived up to its usual market volatility, with several big down days on the Dow Jones Industrial Average. However, things are looking up, and with this morning’s futures, it looks like investors appreciate the coming gridlock in Congress, following yesterday’s mid-term elections.
The market advanced nicely today, continuing the bounce it’s enjoyed during the past week and a half. It’s encouraging action, and we’re not opposed to doing a little buying here or there given our large (76%) cash position.
That said, our trend-following indicators are still negative, telling us that, despite the nice rally, we need to see continued positive action before starting a major new buying spree. Right now, we’re mostly focused on fine-tuning our watch list, which we’re not having trouble doing given the many strong earnings gaps seen recently.
In tonight’s issue, we talk a bit about how markets usually bottom after a big decline, something that’s good to keep in the back of your mind. And we spend a lot of space discussing potential leaders of the next advance.
That said, our trend-following indicators are still negative, telling us that, despite the nice rally, we need to see continued positive action before starting a major new buying spree. Right now, we’re mostly focused on fine-tuning our watch list, which we’re not having trouble doing given the many strong earnings gaps seen recently.
In tonight’s issue, we talk a bit about how markets usually bottom after a big decline, something that’s good to keep in the back of your mind. And we spend a lot of space discussing potential leaders of the next advance.
The rally continues, but it is definitely losing steam; odds are that the market will see more downside action soon, so if you’re heavily invested, you should think about lightening up.
At the same time, there are pockets of strength developing, so if you’re perhaps underinvested, several of the portfolio stocks deserve a hard look.
At the same time, there are pockets of strength developing, so if you’re perhaps underinvested, several of the portfolio stocks deserve a hard look.
The stock market continues to work its way through the second of two 10% corrections in 2018, as measured by performance of the S&P 500 index. On the bright side, the worst appears to be over for the majority of stocks that I follow. Exceptions will include stocks that are reaching annual lows. Unfortunately, those stocks will likely fall further until tax loss selling subsides.
I continue to expect many stocks to remain low through year end, possibly followed by quite a bull run in January.
I continue to expect many stocks to remain low through year end, possibly followed by quite a bull run in January.
Current Market OutlookAfter a punishing month, last week’s three-day bounce qualifies as a decent first step for the market and many individual stocks and sectors—most now have some breathing room above last week’s low points, and ideally, we’ll begin to see more potential leaders strut their stuff in the weeks ahead as the situation stabilizes. But a good first step is the best description we can give the bounce at this point given that the intermediate-term trends of just about everything (indexes, sectors, stocks) remain pointed down, and the odds favor plenty of volatility (at the very least) going forward. It’s not 2008 out there, but trends are negative, so until the bulls truly retake control, defense is the name of the game. We’re leaving our Market Monitor at a level 3.
The good news is that this week’s list has many recent earnings winners that could do well once a new uptrend gets underway. Our Top Pick is Exact Sciences (EXAS), a name we’re high on and that remains perched near its highs after another excellent quarterly report.
| Stock Name | Price | ||
|---|---|---|---|
| Bilibili (BILI) | 28.71 | ||
| Cooper Tire (CTB) | 31.50 | ||
| Deckers Outdoor Corp. (DECK) | 141.68 | ||
| Exact Sciences (EXAS) | 116.91 | ||
| HealthEquity, Inc. (HQY) | 70.70 | ||
| Keurig Dr Pepper (KDP) | 25.35 | ||
| Omnicell (OMCL) | 81.03 | ||
| Starbucks (SBUX) | 64.49 | ||
| Under Armour, Inc. (UAA) | 26.82 | ||
| VeriSign (VRSN) | 190.71 |
October proved to be a challenging month for stocks, but one good thing came out of it—it helped me identify stocks that investors really want to own!
The recent bounce in emerging market stocks has raised hopes that the end might be near for the powerful correction that has hit EM stocks so hard. That may be the case, although the only sure way to tell is to watch the market’s action tomorrow and through the rest of earnings season and beyond. We’re certainly not going to do any predicting, just telling you what to do based on the action we see. The next few weeks will see quarterly reports from four of our stocks, and will also give us a sense of what the future leadership among emerging-market stocks will look like. In today’s issue, we have a South African company that’s becoming a global player in a software niche.
Updates
[Note: The Cabot Turnaround Letter weekly update won’t be published next Friday, June 19, due to the market being closed for the Juneteenth holiday.]
Before we get into the main topic for today’s newsletter update, a quick note on the portfolio is in order. I’m continuing our “spring cleaning” effort that we began last week by trimming a couple more of our holdings, but I’m also adding a new position to take the place of the recent deletions.
Before we get into the main topic for today’s newsletter update, a quick note on the portfolio is in order. I’m continuing our “spring cleaning” effort that we began last week by trimming a couple more of our holdings, but I’m also adding a new position to take the place of the recent deletions.
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.
Alerts
Three stocks move to Hold, one stock moves to the Growth & Income Portfolio, and one stock moves to Strong Buy.
A huge milestone payment added to the winning results for this biotech in its last quarter, and a healthy pipeline and new president promises to keep the company in a fast-growth mode.
The merger has been delayed for a review by the U.S. Committee on Foreign Relations; analysts believe the deal will still occur, which may give time for the stock to rise for a sweeter buyout.
Three of our stocks reported June quarter-end earnings results. Two beat all analysts’ estimates for the quarter, and one boosted full-year revenue expectations.
The top three sectors in this international fund are Technology (23.6% of assets); Financial Services (18.51%) and Healthcare, 15.89%).
Four of our stocks reported earnings, plus a new Buy, a Sell and a rating change.
Stronger than expected results have caused my Min Sell Price for August to rise, so hold your shares until the stock price rises to the new Min Sell Price.
Change has come to the weight loss industry, and this company is leading the way with 30% revenue gains in the past quarter.
Two of our stocks reported earnings and opened lower this morning. I’m keeping one on Hold and moving the other, which was rated Buy, to Hold as well.
Nine analysts have boosted their earnings outlook for this energy service company in the past 30 days.
Scripps Networks (SNI) will be acquired by Discovery Communications. SNI shareholders will receive $90.00 per share in the form of $63.00 cash plus $27.00 in Discovery Communications common stock. Sell SNI now.
The shares of this big-box retailer were just upgraded to ‘Outperform’ at Raymond James. The company beat estimates by $0.09 last quarter, and seven analysts have boosted their earnings forecasts in the past 30 days.
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.