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Current Market Outlook


From a top-down perspective (looking at the major indexes and overall trends), last week wasn’t a big deal—most indexes remain in their three-month trading ranges, and all of them are above their longer-term moving averages. But there’s no question that the sellers pulled out the bazooka on many high relative performance stocks, cracking many uptrends in the process. So, combined with the tedious trading during the past few weeks, we’re pulling in our horns a bit more by moving our Market Monitor down two notches to a level 4 out of 10. It’s still best to hold your resilient stocks, especially those that have reacted well to earnings (of which there are many). But you should also limit new buying and be holding plenty of cash until the market firms up.
This week’s list has another batch of earnings winners from last week; if the market can find its footing, many should do well going forward. If you’re looking to nibble on something, our Top Pick is ServiceNow (NOW), an emerging blue chip in the cloud software sector that has a huge runway of growth ahead of it.

Stock Name	Price	Buy Range	Loss Limit
Arch Coal (ARCH)	82.27	74-70	63-61
Cirrus Logic Inc. (CRUS)	0.00	54.5-52.5	50.5-49.5
Ellie Mae (ELLI)	0.00	105-102	98-97
Expedia Group (EXPE)	0.00	130-125	116-115
Mastercard Incorporated (MA)	0.00	107-105	101-100
New Oriental Education (EDU)	113.97	50-48	46-45
ServiceNow (NOW)	341.86	86.5-83.5	79-77.5
Tesaro (TSRO)	0.00	120-116	108-106
US Silica Holdings, Inc. (SLCA)	0.00	46-44	41-40
Western Digital Corporation (WDC)	0.00	59-56.5	52-51

The broad market began to show strength in late December, and last week we saw further progress, with new lows continuing to shrink to very bullish levels while a granddaddy blastoff measure (the 2-to-1 Blastoff Indicator) turned green. It’s all very encouraging, but now we need to see more “primary” evidence turn positive, including the trends of the major indexes and many more “real” breakouts from high relative strength stocks. We’re optimistic, but are in a trust-but-verify mode; for now we’ll move our Market Monitor to a level 5.

This week’s list is heavy on many themes that are working, including solar, metals, infrastructure, China and travel. Our Top Pick is from the latter area and has turned the corner in a decisive manner.

As earnings season gets into gear we have a few updates on positions that have reported this week. Stepping back and looking holistically at our portfolio, which currently has 34 positions, we’re going to view earnings season as an opportunity to prune our portfolio a little. Essentially, we want to use the current market’s strength to our advantage to lock in some profits, exit stories that aren’t super-inspiring at the moment, and focus on the highest potential names.

Based on past performance, airline stocks deserve their reputation as terrible investments. All three of the major full-service carriers operating today–American Airlines Group (AAL), Delta Air Lines (DAL) and United Continental Holdings (UAL)–have declared bankruptcy at least once. However, investors shouldn’t overlook fundamental changes in the airline industry that have transformed...

I saw a quotation that said, “If you don’t know who you are, the market is an expensive place to find out.”

Even though the market rebounded heroically in October, that August correction was just too strong to overcome. Cabot’s growth advisories protected subscribers by moving heavily into cash when things were stormy, but we didn’t have the kind of steady tailwind from the market that produces bushels of big performers. Today I would like to review three top performers of 2015.

The International Energy Agency issued a report earlier this month predicting that a “golden age of gas” could be coming.

We think the odds favor the market has found a short-term low (last Monday) amid lots of panic selling, and it’s probably starting to repair the damage from the prior few weeks … but that process is likely to take some time, as the market deals with the tariff and economic uncertainty and as new potential leaders try to round out launching pads. Of course, how the market acts from here will be key, so we’re remaining flexible, but we always advise going with what’s in front of us, and right now the odds favor more patience will likely be needed before a sustained advance can develop. We’ll leave our Market Monitor at a level 3.

As the correction has gone on, it’s become easier to spot the names that are resisting the decline. Our Top Pick is a newer name to most and it’s shown accelerating accumulation the past three weeks.

In the November Issue of Cabot Early Opportunities we lean into the strengthening market with a group of companies doing everything from providing security for new AI applications to paving roads in the Sun Belt to making packaged foods for health-conscious consumers, and more.

As always, there’s something for everybody!

The impressive rally that has confounded so many may be running out of gas.

As of Friday’s close, the S&P 500 is up about 15% YTD and over 20% from the October low, making it officially a new bull market. Investors are optimistic that inflation is falling, the Fed is almost done hiking, and there is no recession in sight. The market is sensing that we can get through this rate-hiking cycle without much pain.

But this rally is not as impressive as it seems. Only about 10 large technology stocks account for just about all the YTD gains. The other 490 stocks on the index have collectively gone nowhere.

WHAT TO DO NOW: Remain bullish, but continue taking things on a stock-by-stock basis. We’re seeing another round of sharp selling in many leading growth stocks today, though few (if any) have cracked meaningful support. To us, it’s another shot across the bow, not prompting any major moves but putting us on alert with certain names. In the Model Portfolio, we’re making one small move—selling 20% of our stake in CrowdStrike (CRWD)— while doing a quick flip on Celsius (CELH), placing it on Hold after last week’s half-position buy after today’s drop on news. Our cash position will now be 25%, and we’re keeping our eyes on a few names should the selling continue.