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Current Market Outlook


Today’s news centered around earnings duds from a couple of big names (Caterpillar and Nvidia), causing the major indexes to take some hits. But stepping back a bit, we’re not seeing anything abnormal—since the start of last week, the major indexes have slipped 1.5% (ballpark) and most leading stocks are acting just fine. Of course, further dips in the short-term are certainly possible given that the Nasdaq ran 1,000 points from its Christmas Eve low, earnings season is revving up and most stocks have plenty of overhead to battle. Even so, the intermediate-term trend remains pointed up and, in general, the market and leading stocks continue to act how they “should” if the sellers have run out of ammo. We remain optimistic, and think many names will be good buys if we do see some more retrenchment.

Tonight’s list has a great batch of mostly growth stocks, albeit from a variety of industries. Our Top Pick is Lululemon (LULU), which, after a great six-month run and fourth-quarter correction, is showing terrific strength. Try to buy on dips.

Stock Name	Price	Buy Range	Loss Limit
Ciena (CIEN)	44.25	38-40	33-34
EPAM Systems (EPAM)	188.24	136-140	124-126
Exact Sciences (EXAS)	116.91	80-84	71-73
Lululemon Athletica (LULU)	304.69	144-149	132-135
Mirati Therapeutics (MRTX)	104.98	58-62	50-52.5
ServiceNow (NOW)	341.86	186-191	172-175
Shopify (SHOP)	585.00	153-158	142-144
Splunk (SPLK)	207.67	115-120	104-107
Tencent Music Entertainment (TME)	18.41	14.5-15.4	13.1-13.7
Xilinx (XLNX)	134.50	105-110	93-96

January has lived up to its billing so far, with lots of ups and downs among individual stocks and sectors based on a variety of news, rumors and, starting today, some Q4 pre-announcements linked to upcoming conference presentations. Even so, while the action is hectic, the underlying evidence is the same as it has been for the past few weeks: The intermediate-term trend of the major indexes is positive, not powerful, while for individual stocks and sectors, many are acting well, but it depends where you look. If we see a shift in the evidence, we’ll shift our stance, but until then, we’re leaving our Market Monitor at a level 7.

This week’s list is a potpourri of ideas from a variety of different areas that have come into favor this year. Our Top Pick is a solid growth story in the strong aerospace/defense area with big earnings coming. Shares boomed out of a base last week—try to enter on weakness.

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WHAT TO DO NOW: Remain cautious overall, but if you have a ton of cash, it’s OK to put a little to work. Our market timing indicators have improved, but by our eye, haven’t yet turned up, and while last week was a great first step for the market, there hasn’t been much follow through or expansion of new highs. To be clear, we’re optimistic and a few good days could make all the difference, but right here we’re still going slow and seeing if the market and leadership can truly emerge. In the Model Portfolio, we’ll buy another half of DraftKings (DKNG), leaving us with around 65% in cash. We’re also restoring our Buy rating on Uber (UBER) for those that don’t own any given the stock’s very powerful snapback. If things kick into gear, we’ll likely put money to work quickly, but right now we’re going slow and letting the rally prove itself. Details below.

We can’t say much bad about the market’s rebound from its pre-Thanksgiving low area, but we wouldn’t say the rally has been decisive at this point. That’s not bearish, but simply a fact that the recovery needs to continue to progress—a bad two or three days from here could get iffy, though continued strength would likely bring a spate of breakouts. As always, we’ll just take it as it comes—right here, we’re encouraged and are extending our line, but are going slow until we see more stocks confirm on the upside. Our Market Monitor stands at a level 6.

This week’s list reflects some of the broadening out we see in the market, with names from many different nooks and crannies. Our Top Pick is a chipmaker that sat out the dance during the past year and a half but has recently emerged on big volume after earnings as growth accelerates. Try to buy on weakness.

The market has pulled back a bit in recent days, but not enough to change our stance. By our measurements, the market’s intermediate-term trend remains up, while the long-term trend is still working to turn up.

More important, however, is how the stocks in our portfolio are acting, and the answer is “pretty good!” In fact, we’ll continue to hold them all today.



As for today’s recommendation, it’s a very well-known U.S. meat company that reported earnings just this morning—and the dip that followed that report now makes the stock an even better bargain!



Full details in the issue.

We’ve moved into the second half of the year, but the overall picture is still the same for the stock market—there are some positives out there, but we’re still stuck in a downtrend—all indexes and growth funds are below key intermediate- and longer-term moving averages, and the fact that we’re seeing lots of stocks still hitting 52-week lows every day (even on big up days) tells us the broad market remains on the outs. All in all, it’s important to keep your eyes open and to stay flexible; the market can turn up at any time given that it’s looking months into the future, but as we’ve been writing for months, we have to see strength develop first, so defense remains the name of the game.



This week’s list is a hodgepodge of ideas, from big, steady-Eddies to smaller up-and-comers that want to get moving if the market can stabilize. Our Top Pick is an off-the-bottom name whose RP line has turned strong and whose growth is rapid and should accelerate.

The Emerging Markets Timer is still pointed up, but it’s clearly seen some selling volume over the last week. So while we’re still bullish, we’re not looking to push for further exposure at this point. The only change in the portfolio is the sale of Telkom Indonesia (TLK) that we recommended in a Special Bulletin on Wednesday.

Last week saw buying climaxes at 41 with selling climaxes at 46. Fairly subdued levels as the range-bound action on the indices continues. Buying climaxes were greatest among Health Care (4), Banks (3), Media (3), Biomedics (2), Buildings (2), Retailing (2),...

The title of this note might be, “What to expect when you’re expecting … earnings.” As companies in the Cabot Undervalued Stocks Advisor portfolio start reporting earnings this week, let’s look into what is behind the results and estimates.

There’s little doubt the market’s evidence has worsened of late, with our Cabot Tides and Two-Second Indicator re-joining the Cabot Trend Lines on the bearish side of the fence; thankfully, we went slow on the buy side in July and early August, and today, stand with about 65% in cash. But we’re also not completely in the storm cellar, as we still see signs the market could be in a bottoming effort (and in-between phase between bear and bull), so we’re happy to hold onto some resilient stocks and aim to nibble on potential leaders if the market can find its footing.


In tonight’s issue, we dive further into our thoughts on the market, but spend most of the time writing about future leaders, including a few from one sector that’s clearly in pole position to do well if the bulls can step up to the plate