Wow! The Dow Jones Industrial Average saw a bumpy month the first couple of weeks in October, but made up for those doldrums yesterday, gaining 547 points—all in one day! The catalyst? Some important and very positive earnings news from Morgan Stanley, who pointed to the resurgence of its IPO business; Goldman Sachs, who also enjoyed increases in its underwriting area; and Johnson & Johnson, who cited some nice sales improvements.

Overall, it just seems like folks were ready for some good news. Sentiment remains bullish, as you’ll see from our Advisor Sentiment Barometer, which barely moved this month. However, some caution is being advised—at least in the short term—as reflected in our Market Views section of the newsletter.

The market’s broad rebound continued today, erasing a good part of the losses sustained in the recent two-week collapse. The major indexes still have a long way to go to return to their old highs, but I think they will do it, as our market timing studies tell us that the sharp pullback was likely simply a normal correction in the long-term uptrend.

Current Market Outlook


The market continued to unravel last week, with leading growth stocks getting battered again and the rest of the market joining the downturn. In the near-term, we have seen some signs of panic and also some support, so it’s certainly possible the market can get off its duff a bit in the days ahead. But given the severity of the selling and the fact that the intermediate-term is firmly down, the odds favor more correction and consolidation ahead. That means the main goal here is the preservation of your capital and your confidence, both of which will come in handy during the next upturn. Nibbling on a name or two if you already hold a lot of cash is fine (we have some intriguing resilient situations in today’s issue) and could prove profitable if we bounce. But the big money will be made in the next sustained uptrend, so it’s best to stay mostly safe until that arrives.

This week’s list is a hodgepodge of stocks and sectors, which isn’t surprising given the environment. Our Top Pick is Ulta Beauty (ULTA), which remains resilient and looks ready to be a steady leader once the market correction is over.

Stock Name	Price	Buy Range	Loss Limit
Advanced Micro Devices (AMD)	82.24	25-26.5	22-23
Amarin (AMRN)	14.06	18-20	15-16
Callaway Golf (ELY)	20.21	22.5-23.5	20.5-21.5
Ensco plc (ESV)	6.52	8.0-8.5	7.0-7.3
Kirkland Lake Gold (KL)	51.30	20-21	18.4-18.9
Match (MTCH)	0.00	51-54	47-48
The Mosaic Company (MOS)	29.22	31.5-33	29.5-30.5
PBF Energy (PBF)	38.93	47.5-49.5	45-46
Petrobras (PBR)	14.78	14.5-15.5	13.5-14
Ulta Beauty (ULTA)	331.95	275-280	258-261

The leaves are rapidly falling here in Tennessee, but thankfully, the markets continue to hold their own, with the Dow Jones Industrial Average picking up about 500 points since our last issue. As you’ll see in our Market Views, our advisors are a bit cautious in the short-term, but overall, market sentiment remains very bullish.

Growth stocks have gone over the cliff during the past eight trading days, with many suffering waterfall-like declines. With our Tides negative and most growth stocks in tatters, we’ve turned defensive by quickly paring back on our names.

Since last Monday, we’ve sold three stocks and taken partial profits on three more. And tonight, we’re selling another (Autodesk) -- all told, boosting our cash position from 16% a week and a half ago to 61% after tonight’s sale. From here, we’re likely to give some stocks a little rope given the chance of a short-term snap back, and because, big picture, we’re still in a bull market. But right now it’s time to focus on capital preservation.

In tonight’s issue, we give you all our latest thoughts on the market, our stocks and some names we see holding up so far (one of our favorites is written about starting on page 6). And we also talk a bit about what to do when everything falls apart at once, offering some pointers about differentiating what to hold and what to dump.

The market’s intermediate-trend has turned decidedly down, so taking steps to minimize the risk from your most aggressive stocks is critical. But don’t throw the baby out with the bathwater! The market’s long-term trend is still up, and I’m confident there is still more upside potential for a well-diversified portfolio of carefully-chosen stocks.

Current Market Outlook


You can blame interest rates or the Chinese or the economic cycle or politicians or even the celestial bodies, but it when all is said and done, it doesn’t matter why stocks have been struggling; the fact is that they are. And if you simply recognize that fact and accept it, then you can turn to the next step, which is to protect the profits you’ve earned in the long bull market and be selective when it comes to venturing into new stocks. That’s what Cabot Top Ten Trader is all about. The Market Monitor falls one notch lower to 5, but the ten stocks in today’s issue are still—on their own—quite attractive, plus they come from a wide variety of industries.

Our Editor’s Choice is Clean Harbors (CLH), a stock that was last hot in 2011, after which it spent nearly seven years out of the limelight. But now it’s back and the chart risk looks low.

Stock Name	Price	Buy Range	Loss Limit
American Outdoor Brands (AOBC)	13.69	14-15	13-13.5
Canopy Growth (CGC)	38.82	46-50	40.5-43
Clean Harbors (CLH)	66.42	68.5-71	63-64.5
Endo International plc (ENDP)	13.32	16-17	14-14.7
EOG Resources, Inc. (EOG)	101.98	127-131	120-122
Exact Sciences (EXAS)	116.91	67-70	62-64
Glaukos Corp. (GKOS)	67.84	58-61.5	53-55
Novocure (NVCR)	0.00	47.5-49.5	43-44
Roku, Inc. (ROKU)	150.46	63-66	58-60
Square, Inc. (SQ)	91.04	83-86	76-78

Despite weakness in the broad market today’s addition is holding up very well. The company specializes in simulation software – programs that tell users what a physical object, or process, may or may not do.

[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.

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.

While this Fidelity fund falls into the large-cap growth category, the fund’s mandate is quite different from that of most of its peers.

Updates on Vertex Pharmaceuticals (VRTX) following the July 18 breakthrough drug announcement, and Chipotle Mexican Grill (CMG), which is in the news again due to the closing of a Virginia restaurant location.

This optical company was recently added to the Russell 2000 Microcap/Small Cap Index, which should invite new institutional interest in the shares.

Crista comments on Goldman Sachs’ and Bank of America’s strong second quarter earnings beats this morning, plus provides an earnings report calendar for our stocks through July.

Along with other top management changes, this biotech just announced a new CFO today.

Special updates on two of our stocks that are good Buys here.

Analysts are forecasting double-digit growth for this new Top Pick.

This uranium company has several catalysts in store, and analysts are projecting double-digit growth this year.

Today we have five buy ideas including two ratings changes.

This pharmaceutical company is forecast to continue growing at double-digit rates over the next five years.

This ETF focuses on medium-sized growth companies in the cyber security space—a fast-growing arena.

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.