Issues
Current Market OutlookEver since the mini-blowoff we saw in growth stocks in mid June, the market has been choppy, narrow and tough to maneuver, with many individual stocks going nowhere and a handful of leaders flashing abnormal intermediate-term action. But the character of the market seems to have changed during the past couple of weeks—the day-to-day rotation is gone, leading growth stocks have generally resumed their advances and the major indexes have moved to new highs. It’s still not 1999 out there, of course, and a big factor will be how the market reacts once big investors return from the beach next week. But there’s no question the evidence continues to improve, so we’re bumping up our Market Monitor to a level 8 (out of 10).
This week’s list has a bunch of good setups and great breakouts from growth-oriented stocks. Our Top Pick is Pure Storage (PSTG), which looks like it has recovered from the choppy action of the past few quarters.
| Stock Name | Price | ||
|---|---|---|---|
| Autodesk (ADSK) | 229.00 | ||
| DocuSign (DOCU) | 107.98 | ||
| Horizon Therapeutics (HZNP) | 49.89 | ||
| Nordstrom Inc (JWN) | 60.72 | ||
| Novocure (NVCR) | 0.00 | ||
| PetIQ (PETQ) | 30.82 | ||
| Pure Storage (PSTG) | 25.64 | ||
| SailPoint Technologies (SAIL) | 31.60 | ||
| Splunk (SPLK) | 207.67 | ||
| Williams-Sonoma (WSM) | 64.96 |
Things are looking up for emerging market equities. They’re not fully healthy, yet, but there has been definite improvement since the August 16 low. In today’s issue, I have some thoughts about whether or not this is a bottom in emerging markets, and how we will know one when it appears. I also have an intriguing new IPO for you to consider.
The market’s main trends remain up, and thus I remain bullish. In fact, I think the challenging action of the past few weeks has cleared the air a bit and set the stage for a renewed advance.
Current Market OutlookNot much has changed with the market’s tenor during the past week. The major trends are still positive, but not powerful, with many indexes not making much headway during the past two months. And for individual stocks, again, there’s more good than bad, but the advance is narrow and news driven, and we’re seeing more buying of defensive stocks. Overall, we’re still more positive than not because most of the evidence favors the bull side—and it’s worth noting that it wouldn’t take more than a couple of good days to get all the major indexes to all-time highs! But we also think it’s a good idea to go slow, look for solid entry points and, of course, honor your stops. We’re keeping our Market Monitor at a level 7.
This week’s list has a nice mix of solid stories from a few different industries. Our Top Pick is a stock that’s been a leader all year—Coupa Software (COUP), which has tightened up after a couple of months of consolidation. Start small and see what comes on earnings early next month.
| Stock Name | Price | ||
|---|---|---|---|
| CenturyLink (CTL) | 22.88 | ||
| Chipotle Mexican Grill (CMG) | 773.32 | ||
| Coupa Software (COUP) | 262.20 | ||
| Dexcom (DXCM) | 421.36 | ||
| Five9 (FIVN) | 78.35 | ||
| The Flowserve Corporation (FLS) | 54.70 | ||
| Ligand Pharmaceuticals (LGND) | 267.14 | ||
| Sendgrid (SEND) | 33.32 | ||
| Trade Desk (TTD) | 468.02 | ||
| Trex Company (TREX) | 117.56 |
The market is positive, but it’s not powerful, with a generally choppy, narrow and rotational environment in recent weeks. Even so, we’re encouraged by the action in some growth stocks, so after getting knocked out of a few names during earnings season, we’ve begun to put some money back to work.
The market’s main trends remain up, and thus I remain bullish. But there are some serious crosscurrents out there making investing a bit more challenging.
Our Spotlight Stock, a company that is taking the market of used cars to places that no one expected. The growth of the company is tremendous! In my Feature article, I report on the company’s stunning second quarter, as well as the catalysts keeping this market growing at significant rates.
Current Market OutlookTurkey’s currency crisis is the latest of what seems like a never-ending string of worries this year (volatility implosions, trade wars, rate hikes, etc.) that have hit the market to some extent. That said, we’re relatively encouraged by what we’ve seen during the past couple of weeks, with the major indexes holding and bouncing off important support, some new leadership emerging on earnings and other leading names forming solid bases. It’s still a tricky, narrow and choppy environment, which is a good reason to pick your spots, honor your stops and hold some cash. But we’re nudging our Market Monitor up another notch, as we see a healthy number of good-looking leading stocks and the market’s major trends remain up.
For the second week in a row, we have a growth-oriented list, a positive sign after the late-July selloff. Our Top Pick is Roku (ROKU), a very volatile name with a very big story. Keep it small, try to buy on dips and expect plenty of wiggles.
| Stock Name | Price | ||
|---|---|---|---|
| Alteryx (AYX) | 132.78 | ||
| Carvana (CVNA) | 82.90 | ||
| CF Industries (CF) | 45.23 | ||
| CyberArk (CYBR) | 111.74 | ||
| Match (MTCH) | 0.00 | ||
| Michael Kors Holdings Limited (KORS) | 73.22 | ||
| Roku, Inc. (ROKU) | 150.46 | ||
| Seattle Genetics (SGEN) | 150.85 | ||
| Teladoc, Inc. (TDOC) | 127.95 | ||
| Wingstop (WING) | 121.52 |
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
This pool-based business beat analysts’ estimates by $0.12 last quarter.
For the first time in months, we’re seeing a few signs of abnormal action from a variety of growth stocks, though on a positive note, few have actually broken down through key support.
Here’s my assessment of the high flying technology stocks, which now look vulnerable.
I’m selling one of our stocks and adding a new bank stock to the Growth Portfolio. I also describe a big June catalyst for banks’ share prices and highlight 11 other bank stocks.
The top five holdings of this fund are: iShares Russell 2000 Growth (IWO, 3.16%); Six Flags Entertainment Corp (SIX, 2.40%); j2 Global Inc (JCOM, 2.39%); FirstCash Inc (FCFS, 2.02%) and Ligand Pharmaceuticals Inc (LGND, 1.96%).
Analysts are forecasting double-digit growth for this turnaround auto company in the next five years.
Crista is selling one stock, moving another from Hold to Strong Buy, and names 15 great stocks to buy today.
This fund’s top five holdings are: Apple Inc (AAPL, 7.57% of assets); Alphabet Inc A (GOOGL, 6.45%); Amazon.com Inc (AMZN, 6.07%); Facebook Inc A (FB, 4.25%) and Tesla Inc (TSLA, 3.56%).
Seasonal cycles make this healthcare company a buy.
Our second recommendation is profit-taking on a previous idea.
This miner is expanding and recently acquired a silver stream from Taseko Mines Ltd.
Now that CMG has been resting for quite a few weeks in a trading range between 470 and 500, I’m moving CMG back to Strong Buy.
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.