Current Market Outlook


The market spent most of last week testing its late-January low, and the combination of some positive breadth divergences (about 1,200 stocks on the NYSE and Nasdaq hit new lows last Thursday, versus 2,300 on January 20) and Friday’s big upmove could mean it’s time for another rally attempt. We’ll be watching the 1,950 level on the S&P 500 and 4,650 level on the Nasdaq—pushes above both levels could turn the intermediate-term trend back up. But that’s looking far down the line; right now, the market’s major trends remain down, and while some stocks and sectors have shaped up, most are still in the mud. Thus, a defensive stance is advised, though we’ll be keeping a close eye on the action in the days ahead.

This week’s list has some enticing names, including a few that reacted well to earnings. Our Top Pick is Sabre (SABR), a behind-the-scenes player in air travel and hotel bookings that has steady growth, booming cash flow and a stock that showed unusual power following its recent quarterly report.

Stock Name	Price	Buy Range	Loss Limit
WellCare Health Plans, Inc. (WCG)	271.83	78-81	72-73
Sabre Corp. (SABR)	0.00	24.5-26	22-22.5
Rovi Corp. (ROVI)	0.00	19-20	16.5-17
O’Reilly Automotive (ORLY)	0.00	245-255	227-229
Nasdaq (NDAQ)	0.00	58-61	55-55.5
Vail Resorts (MTN)	0.00	116-122	109-110
Barrick Gold (GOLD)	27.20	84-88	76-77
Goldcorp (GG)	0.00	14-15	12-12.5
Ellie Mae (ELLI)	0.00	69-73	62-62.5
CH Robinson (CHRW)	0.00	67.5-70	62.5-63

Current Market Outlook


Trend following is our preferred method of market timing for two major reasons: If you follow the system, you’re guaranteed never to remain heavily invested in serious downtrend, and you’re also guaranteed never to miss out on a major uptrend. We’ve seen that play out in recent months—our Market Monitor shifted to neutral in mid-November and to bearish at the start of January, and we continue to advise a defensive stance as the market remains under pressure. We do think stocks could snap back some in the short-term, partially because the broad market isn’t in nearly as bad shape as it was on January 20, when the indexes initially dipped to these levels. But, bounce or not, it’s best to stick with the system, which means remaining defensive until the intermediate-term trend turns up.

This week’s list is a hodgepodge of stocks and sectors, but we feel many can do well once the market finds its footing. Our Top Pick is Michael Kors (KORS), which, after a multi-month bottoming effort, reacted well to earnings last week as results weren’t as bad as feared. The stock is dirt cheap, too.

Stock Name	Price	Buy Range	Loss Limit
Vantiv (VNTV)	0.00	43.5-45.5	41-42
Vulcan Materials Company (VMC)	137.10	86.5-90	81-82
Super Micro Computer (SMCI)	0.00	29-31	26-27
PayPal (PYPL)	147.00	32-34	29-29.5
Universal Display (OLED)	187.54	40-43	37-38
Newmont Mining (NEM)	57.31	23.5-25	21.5-22
Mattel, Inc. (MAT)	0.00	30-31	28-28.5
Michael Kors Holdings Limited (KORS)	73.22	47.5-50.5	43-44
First Solar (FSLR)	83.74	62-64	57.5-58
Agnico Eagle Mines (AEM)	79.05	31-33	28-28.5

Current Market Outlook


First, the good news: By last week’s end, the major indexes had extended their bounce, with many recouping about 45% or more of their December 29-January 20 meltdowns. And this bounce probably has further to run, especially as earnings season has helped a few stocks show excellent strength. All of that said, the onus remains on the bulls to prove this bounce can morph into a sustained rally—the intermediate- and longer-term trends are still pointed down for all indexes and the vast majority of stocks, and to this point, most of the “action” has been in defensive and interest rate-sensitive sectors (utilities, REITs, tobacco, etc.). That can always change, and we hope it does, but right now it’s best to remain defensive and allow the market to prove itself on the upside.

This week’s list contains some turnaround situations, but we’re encouraged to see some real growth stocks as well. And the Top Pick this week is the flag-bearer for all growth stocks—Facebook (FB) is well owned, but remains one of the best stories around, and last week’s earnings report revealed accelerating growth.

Stock Name	Price	Buy Range	Loss Limit
TAL Education (XRS)	0.00	45-47	41-42
Under Armour (UA)	0.00	80-83	74-76
T-Mobile US (TMUS)	0.00	38-40	35-36
SolarEdge Technologies Inc. (SEDG)	124.37	27-29	24-24.5
Facebook, Inc. (FB)	0.00	110-115	102-103
Diamondback Energy (FANG)	0.00	70-74	63-64
Dollar Tree (DLTR)	0.00	78-81	72-73
Cirrus Logic Inc. (CRUS)	0.00	33-35	30-30.5
Align Technology (ALGN)	316.20	64-67	61-61.5
Barrick Gold (ABX)	0.00	9.5-10	8-8.5

Current Market Outlook


Last Wednesday appears as if it will mark a short-term low for stocks—there were many extremes in sentiment (fewest number of bullish investors in 10 years) and breadth (most stocks hitting new 52-week lows since 2008), which, combined with the big turnaround that day (and the big relief rally on Friday), increases the odds that we’re now in bounce mode. This bounce could continue for a while, so if you want to nibble on a couple of strong names (especially those that react well to earnings), that’s fine. But our bigger message remains the same: The market’s intermediate- and longer-term trends are clearly down, so it’s likely any bounce will eventually lead to a retest (or worse) of the recent lows.

The good news is that any bounce will allow us to separate the wheat from the chaff, and that process has already begun. This week’s list has a few intriguing growth stories to consider. Our Top Pick is Ligand Pharmaceuticals (LGND), a small, little-known biotech firm with a very unique business model. Put it near the top of your watch list.

Stock Name	Price	Buy Range	Loss Limit
Take-Two Interactive (TTWO)	123.32	32-34	29.5-30
STORE Capital (STOR)	0.00	22.5-23.5	21-21.5
Seaspan (SSW)	0.00	15.5-16.5	14-14.5
Lululemon Athletica (LULU)	304.69	53-57	47-48
Ligand Pharmaceuticals (LGND)	267.14	99-104	90-91
First Republic Bank (FRC)	0.00	64-66	59-60
Edwards Lifesciences (EW)	228.06	76-79	70-71
Cree, Inc. (CREE)	67.96	26-27.5	24-24.5
CoreSite Realty (COR)	0.00	57-59	53-54
Burlington Stores (BURL)	193.95	49-51	46-47

Current Market Outlook


After another week of major selling in the market (the S&P 500 is down 8% this month, while the Nasdaq is off 10.3%), there’s not much left to say except the obvious—the sellers remain in control of nearly every stock and sector, and thus we continue to advise a highly defensive stance. Of course, the market is also very oversold, and at some point there will be a snapback rally (likely to last more than just a few days) that will take the indexes and many stocks higher. But until we see some definitive signs of support, it’s best to stay mostly on the sideline and wait patiently for legitimate set-ups to occur.

This week’s list has a variety of resilient names; some are defensive, some have solid growth stories and others are special situations. Our Top Pick is Chuy’s Holdings (CHUY), a small (and thinly traded) cookie-cutter story whose stock has been amazingly resilient this month.

Stock Name	Price	Buy Range	Loss Limit
Ryanair DAC (RYAAY)	0.00	81-84	75-76
MACOM Technology Solutions (MTSI)	0.00	34-36	31.5-32
Intuitive Surgical, Inc. (ISRG)	0.00	535-555	500-505
Alphabet, Inc. (GOOGL)	0.00	695-720	640-645
Flir Systems (FLIR)	0.00	30-31	27.5-28
Five Below (FIVE)	134.58	32-34	29-29.5
DreamWorks (DWA)	0.00	24-25.5	22-23
CubeSmart (CUBE)	0.00	29.5-31	27.5-28
Chuy’s Holdings (CHUY)	0.00	32.5-35	29.5-30
Abiomed (ABMD)	0.00	83-87	77-78

Current Market Outlook


The first week of the year was historically bad, with all the major indexes breaking lower and most individual stocks going along for the ride. With such dramatic action, we’re sure you’ll hear and read a variety of predictions, but we urge you to ignore the noise and focus on the facts—and the facts today are that the trends are down, so you should remain in a defensive posture, meaning lots of cash, little if any new buying, with the focus on building a watch list of future winners. Obviously, short-term, a bounce is overdue, and when it comes, it could be a great one. But the fact that the market has had trouble rallying even in the face of “oversold” conditions isn’t a good sign. It’s best to stay defensive until we see some sustained buying emerge.

This week’s list contains special situations, income securities, precious metals and even a couple of resilient growth stocks. Our Top Pick is Rovi Corp. (ROVI), a cheap technology stock that just exploded higher following two major license renewals. Nibbling on dips could work out.

Stock Name	Price	Buy Range	Loss Limit
58.com (WUBA)	0.00	58-61	54-55
Ulta Beauty (ULTA)	331.95	176-182	163-165
Rovi Corp. (ROVI)	0.00	16-17.5	14-15
Children’s Place (PLCE)	0.00	59-62	53-54
National Storage (NSA)	0.00	16-17.5	15-15.5
FLSR (FLSR)	0.00	62-65	56-58
Equinix, Inc. (EQIX)	547.73	300-308	278-282
Athenahealth (ATHN)	0.00	150-155	140-142
Abercrombie & Fitch (ANF)	15.37	24-25.5	22-23
Agnico Eagle Mines (AEM)	79.05	28-29.5	25.5-26

Current Market Outlook


The first week of the year was historically bad, with all the major indexes breaking lower and most individual stocks going along for the ride. With such dramatic action, we’re sure you’ll hear and read a variety of predictions, but we urge you to ignore the noise and focus on the facts—and the facts today are that the trends are down, so you should remain in a defensive posture, meaning lots of cash, little if any new buying, with the focus on building a watch list of future winners. Obviously, short-term, a bounce is overdue, and when it comes, it could be a great one. But the fact that the market has had trouble rallying even in the face of “oversold” conditions isn’t a good sign. It’s best to stay defensive until we see some sustained buying emerge.

This week’s list contains special situations, income securities, precious metals and even a couple of resilient growth stocks. Our Top Pick is Rovi Corp. (ROVI), a cheap technology stock that just exploded higher following two major license renewals. Nibbling on dips could work out.

Stock Name	Price	Buy Range	Loss Limit
58.com (WUBA)	0.00	58-61	54-55
Ulta Beauty (ULTA)	331.95	176-182	163-165
Rovi Corp. (ROVI)	0.00	16-17.5	14-15
Children’s Place (PLCE)	0.00	59-62	53-54
National Storage (NSA)	0.00	16-17.5	15-15.5
FLSR (FLSR)	0.00	62-65	56-58
Equinix, Inc. (EQIX)	547.73	300-308	278-282
Athenahealth (ATHN)	0.00	150-155	140-142
Abercrombie & Fitch (ANF)	15.37	24-25.5	22-23
Agnico Eagle Mines (AEM)	79.05	28-29.5	25.5-26

Current Market Outlook


The market began 2016 on a bearish note, with the major indexes plunging and even the market’s most resilient stocks getting hit very hard. The “reason” for the decline was supposedly a meltdown in China’s stock market overnight, but there’s no question the U.S. market’s underpinnings had been weak for a while (hence our cautious approach in recent weeks). From here, anything is possible—January is a notoriously volatile month full of crosscurrents, so yet another snapback is possible. But we’re moving our Market Monitor down a notch into bearish territory given the evidence; now’s the time to think more about capital preservation and work mostly on building a watch list, keeping new buys to very small positions.

This week’s list has many great ideas, stocks that should do well if the market does find strong support. Our Top Pick is SolarEdge (SEDG), which is aiming to be the Intel of the solar sector; the company and the sector as a whole are turning around after a big decline last year.

Stock Name	Price	Buy Range	Loss Limit
SolarEdge Technologies Inc. (SEDG)	124.37	25.5-27	22-22.5
Royal Caribbean Cruises (RCL)	0.00	96-99	91.5-92
Pacira Biosiences (PCRX)	54.85	72-75	66-67
Ophthotech (OPHT)	0.00	70-74	64-65
Universal Display (OLED)	187.54	51.5-54	47.5-48
Nevro Corp. (NVRO)	0.00	64-67	57-58
Neurocrine Biosciences (NBIX)	123.40	50-53	45-46
Dollar Tree (DLTR)	0.00	74.5-78	71.5-72
China Biologic Products (CBPO)	0.00	135-140	123-125
Acorda Therapeutics (ACOR)	0.00	39.5-41	37-38

Current Market Outlook


Last week had some promising moments, but by week’s end, the sellers had pushed the major indexes back down on the week. At this point, the bears are running wild, as most of the major indexes remain in wide trading ranges. At the very least, the intermediate-term trend is sideways-to-down, and the broad market is in poor health, with hundreds of stocks hitting new lows on a daily basis. It’s OK to hold some resilient performers, but we urge a cautious stance, with plenty of cash on the sideline and limiting new buying to just small positions of resilient stocks.

This week’s list has some solid ideas, though there are no broad trends apparent—mainly company-specific situations that have attracted some buyers. Our Top Pick is Alkermes (ALKS), a speculative biotech that could swim against the tide thanks to the FDA’s recent approval for one of its high-potential drugs.

Stock Name	Price	Buy Range	Loss Limit
Red Hat (RHT)	0.00	79-81	74-75
Pure Storage (PSTG)	25.64	15-16.5	13.5-14
NetEase, Inc. (NTES)	0.00	170-176	160-162
Ligand Pharmaceuticals (LGND)	267.14	103-107	96-97
Intra-Cellular Therapies (ITCI)	0.00	50-55	44-46
FLSR (FLSR)	0.00	62-65	56-58
Extra Space Storage (EXR)	0.00	84-87	80-81
Amazon.com (AMZN)	2.00	650-667	618-622
Alkermes (ALKS)	0.00	75-78	68-69
Adobe Inc. (ADBE)	315.23	89-92	85-86

Current Market Outlook


The broad market’s weakness has finally caught up with the major indexes. Last week we saw an end to the post-September market rally, with all major indexes (and most stocks) breaking down. We never got too bullish in recent weeks because of all the warts on the rally, and now it’s time to be cautious, selling your losers and laggards and holding plenty of cash. From here, we’re open to any scenario, ranging from yet another quick snapback to a prolonged downtrend after months of topping action. Just following the evidence, we’re moving our Market Monitor down to the lower end of neutral.

This week’s list reveals that despite the broad market implosion, there are still many resilient stocks; you could nibble on one or two or just add them to your watch list. Our Top Pick is TAL Education (XRS), a stock that looks to be in a bull market of its own.

Stock Name	Price	Buy Range	Loss Limit
TAL Education (XRS)	0.00	43-45	40-41
Wayfair (W)	167.03	43.5-45.5	40-40.5
Take-Two Interactive (TTWO)	123.32	34-35	32-32.5
NVIDIA Corporation (NVDA)	242.42	31-32.5	29-29.5
ServiceNow (NOW)	341.86	81.5-84	77.5-78
Integrated Device Technology (IDTI)	0.00	26-28	24.5-25
Five Prime Therapeutics (FPRX)	0.00	37-40	31-32
Eagle Pharmaceuticals Inc. (EGRX)	0.00	88-93	80-82
Acuity Brands (AYI)	0.00	224-230	208-210
Abercrombie & Fitch (ANF)	15.37	25-26	22.5-23

Current Market Outlook


Last week didn’t see much net change in the major indexes, but volatility has surged, with big swings up and down based on the news of the day. Overall, not much has changed—some stocks and sectors are acting well, but many others are chopping around and some (like MLPs) are literally crashing. By our measures, the market’s trends are still pointed up, but it’s close. All in all, we’re sticking with a relatively neutral stance, meaning we’re holding our top performers, but also holding some cash and being very selective on the buy side. And if something breaks down or trips its stop, it should be jettisoned quickly.

This week’s list continues with the bigger-cap, growth-oriented theme that’s been present for the past few weeks. Our Top Pick is Ulta Beauty (ULTA), which just gapped up to new highs after three months of rest following a great earnings report. Try to buy on dips.

Stock Name	Price	Buy Range	Loss Limit
Weibo (WB)	98.16	18-19	16-17
Western Alliance (WAL)	0.00	36.5-38	34.5-35
Ulta Beauty (ULTA)	331.95	180-184	169-170
Palo Alto Networks (PANW)	236.92	188-193	172-174
Nevro Corp. (NVRO)	0.00	58-62	52-54
Netflix, Inc. (NFLX)	423.92	123-127	113-115
Southwest Airlines (LUV)	0.00	48-50	44-45
Jabil Inc. (JBL)	41.50	24.5-26	23-23.5
Alibaba (BABA)	254.81	82-85	76-77
Broadcom Limited (AVGO)	266.26	142-146	132-134

Current Market Outlook


Since our last issue, the market has rebounded nicely from its sharp one-week pullback in early November, which is obviously good to see. However, not that much has changed from a big picture point of view—the major indexes are in decent shape (the trends remain up), but the advance remains narrow, with a few dozen stocks doing well but many stocks and sectors simply chopping around or trending down. Bottom line, we’ll keep our Market Monitor where it is and stick to our game plan: you should hold your best performers (though taking some partial profits on the way up makes sense), but also hold some cash and be very selective on the buy side.

What’s encouraging is that our screens are finding more and more good growth stories, which is what we see this week. Our Top Pick is a big-cap stock that’s gathering strength as it transitions to the cloud—Autodesk (ADSK) leads its field, but the stock has come alive as big investors anticipate huge recurring revenue ahead.

Stock Name	Price	Buy Range	Loss Limit
Stamps.com (STMP)	0.00	98-103	88-89
PBF Energy (PBF)	38.93	38.5-40.5	36-36.5
Universal Display (OLED)	187.54	49-52	45-46
Monster Beverage Corporation (MNST)	0.00	150-155	139-140
Heartland Payment (HPY)	0.00	76-79	71-72
Home Depot (HD)	0.00	130-133	123-124
Hawaiian Holdings Inc. (HA)	0.00	35-37	31.5-32
General Motors Company (GM)	0.00	35-36.5	32-33
Ctrip.com International Ltd. (CTRP)	34.94	98-104	89-90
Autodesk (ADSK)	229.00	60-63	55.5-56.5

Has there ever been anything as overvalued as SpaceX (SPCX)?

Elon Musk’s rocket and space-based internet company reported $18.7 billion in revenue in 2025. That’s less than half the revenue declining electronics store chain Best Buy (BBY, $41.7 billion) generated last year, less than International Paper Company (IP, $23.6 billion), and barely more than Casey’s General Stores (CASY, $17.6 billion). Those three companies have a combined market cap of roughly $67 billion. As of this writing, SpaceX has a market cap of $2.7 trillion. That’s more than the combined market cap of Walmart (WMT), JPMorgan (JPM) and Visa (V). Together, those three companies generated $847 billion in revenue last year.

Small caps continue to hold up well. The S&P 600 Small Cap Index is up modestly since last Thursday and is trading just below the fresh all-time highs it hit earlier this week. The group’s resilience stands out, especially against a backdrop of narrowing leadership and ongoing rotation beneath the market’s surface.

The main macro development this week was the Fed’s June meeting and Chair Kevin Warsh’s press conference, which confirmed a shift in policy direction.

WHAT TO DO NOW: The market’s bounce has been a good one, and the intermediate-term outlook remains bright. That said, near term, there are still some crosscurrents (rotation into the broad market, Dow outperforming the Nasdaq) that tell us growth stocks could throw us another curveball in the coming week or two. Overall, then, we’re mostly standing pat, but we’re going to add a half-sized stake in Guardant Health (GH) here, leaving us with a still-good-sized cash position of 37% or so. Details below.

Stocks started this week with a huge rally as the Iran ceasefire deal appears to be the real thing.

Of course, it’s been months of supposed peace deals falling apart. It’s hard to believe. I’m sure that fact is holding the market back somewhat. But this one is different for a couple of reasons.

Stocks are starting off this week with a huge rally as the U.S. and Iran have reached a ceasefire deal.

We’ve been here before. These peace deals have fallen apart several times. I’m sure that fact is holding the market back somewhat. But this one is different for a couple of reasons. First, it’s the furthest a peace deal has gotten with both sides agreeing and independent verification from Pakistan. Second, this is what a peace deal would look like at this point if it’s real and lasting.

[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.

Updates on WellCare Health Plans (WCG) and Whirlpool (WHR).

Boise Cascade (BCC) reported forth-quarter results yesterday, and Axiall (Axiall) rescheduled its earnings report.

Shares of online travel company The Priceline Group (PCLN, 1,240.12) are up $129.44 or 11.65% as of midday today after reporting stronger-than-expected full-year 2015 results.

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.