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Should you buy, sell or hold amid this coronavirus crash? Here are a few investment strategies that have helped me through many volatile markets.

The market is going from wobbly to ominous. As of Tuesday’s close, the S&P is negative for the month of July after having been up 3.5% in the first few weeks of the month.


It’s technology. The weakness in the sector that began in the middle of July is continuing. The worry started with the report of AI chip export restrictions to China and has grown into fears of sector overvaluation and slowing growth. But it’s the heart of earnings season. And earnings will confirm or deny those fears.

What had been a tug-o-war between the souring interest rate narrative and earnings excitement is showing signs of veering in yet another direction.

The news on both inflation and the economy has been worse. The Fed’s favorite inflation gauge, the Personal Consumption Expenditures Index (PCE), came in higher than expected at 3.7% last week. Inflation continues to creep higher this year. And that’s with interest rates already at the highest level in decades.

It’s been a good month in the market, so far. The S&P 500 has regained all the dip from April and is now within a whisker of the all-time high. The driving forces have been an improving interest rate story and solid earnings.

With 92% of S&P 500 companies having reported, earnings increased an average of 5.4% over last year’s quarter. But it’s better than that. If you take out the report of Bristol-Myers Squibb (BMY), average earnings growth would be 8.3% for all the other stocks on the index. That’s a strong gain.

Today I’m removing Delta Air Lines (DAL) from the Growth Portfolio. The company’s earnings outlook has deteriorated to an expectation of EPS declining 1% in 2016, and the price chart has not improved since I put the stock on Hold two months ago.

It’s been a painful April for stocks, with the S&P 500 down more than 5% and many growth and small-cap stocks down much further. But in the grand scheme, some selling was to be expected after five straight months of gains. It’s still a bull market, and it’s not likely to up and fizzle after five months. Eventually, selling pressures will ease, and the market will bounce back. Until then, we have to ride out the storm. Today, we do that in several ways: selling two more of our laggards, downgrading two once-red-hot stocks that are in the midst of steep corrections, and adding a new stock from perhaps the one strong sector at the moment: gold miners. It’s a new addition from Tyler Laundon in Cabot Early Opportunities.

What a difference a week makes! Since our last issue, stocks have recovered from their worst trading day since March to reach new all-time highs. So, the bull market remains very much intact, though some growth stocks continue to wobble. Fortunately, today’s featured stock combines both elements of growth and value – and unlike many traditional growth stocks right now, it’s hitting two-year highs.

Details inside.



Lastly, I hope you’ll join me for the 9th Annual Smarter Investing, Greater Profits Online Conference, August 17-19. We have an incredible lineup of experts ready to share their best picks.

The S&P 600 Small Cap Index rallied back to its March 25 levels early this week following weekend talks between China and the U.S. in Geneva, Switzerland. Those talks led to a 90-day ceasefire in the insane trade war between the two countries.

The latest news on trade is also positive, with supposed progress on talks between the U.S. and India, Korea and the EU. The market is a lot happier now that President Trump appears to be working to generate trade deals rather than destroy them.

Current Market Outlook


The market had a relatively quiet week, with the major indexes slipping a fraction of a percent on light volume and most leading stocks marking time after solid advances the prior two weeks. So far, this action is totally acceptable, but the key will be what happens from here—a couple of large, high-volume selloffs would put a serious dent in the rally, but upside follow through in the indexes and many leading growth stocks would go a long way toward confirming that the January-May market correction is over. For now, we advise sticking with a “lean bullish” mentality; we’re OK doing some buying, but also picking your spots and holding some cash as we look for follow through. Our Market Monitor remains unchanged.

This week’s list has a ton of strong stocks in a variety of growth-oriented sectors. Our Top Pick is LPL Financial (LPLA), a mid-sized Bull Market stock that is acting very well and recently crushed earnings expectations.

Stock Name	Price	Buy Range	Loss Limit
51job, Inc. (JOBS)	0.00	99-103	92-94
Baozun (BZUN)	44.24	51-53	46.5-47.5
Carvana (CVNA)	82.90	25.5-27.5	23-24.5
Illumina Inc. (ILMN)	289.74	260-270	244-249
Ligand Pharmaceuticals (LGND)	267.14	181-188	169-172
LPL Financial Holdings (LPLA)	85.22	69-72	63-65
Penn National Gaming (PENN)	45.38	33.5-35	30.5-31.5
SolarEdge Technologies Inc. (SEDG)	124.37	64-67	58-60
Supernus Pharmaceuticals (SUPN)	52.50	53-56	48-49.5
WildHorse Resource (WRD)	0.00	25-27	21.5-22.5

Current Market Outlook


Growth stocks have stabilized and the market has quieted down following the sharp Nasdaq-led selloff, allowing some stocks to bounce back nicely and other new leaders to flex their muscle. Short-term, we wouldn’t be surprised to see some follow-on selling in some of the damaged areas (we still think chip stocks, for instance, look iffy), and some year-end uncertainties (tax reform, government shutdown) could always cause some wobbles. But you know us—we go with the evidence in front of us, and with the major trends of the major indexes and most leading stocks pointed up, we remain mostly bullish. As always, you want to sell stocks that are breaking down and focus new buying on fresher leadership stocks that have shown excellent volume clues.

There are many such examples in this week’s list, which has a wide variety of good-looking charts and stories to choose from. Our Top Pick is Etsy (ETSY), a niche online retailer that’s just turning profitable and has powerfully broken out during the past week.

Stock Name	Price	Buy Range	Loss Limit
Ally Financial (ALLY)	30.44	27.5-29	24.5-26
Boise Cascade (BCC)	0.00	38-40	35-36
Charles Schwab (SCHW)	0.00	49-51.5	46-47.5
D. R. Horton (DHI)	66.55	48-50	44-45.5
Etsy (ETSY)	112.97	18.5-20	16.5-17
First Solar (FSLR)	83.74	64-68	56-59
G-III Apparel (GIII)	45.25	32-34.5	28-30
Global Blood Therapeutics (GBT)	0.00	41-44	36-38
NetApp (NTAP)	0.00	56-58	51-52.5
Roku, Inc. (ROKU)	150.46	43-47	35-37.5

Current Market Outlook


The market definitely showed some improvement last week—the major indexes bounced back decently, and importantly, many recent earnings winners not only held their gains but stretched higher, something we haven’t seen much of for a few months. Because of that, we’re pushing the Market Monitor up a bit, but we remain relatively neutral for one simple reason: the market (and most stocks) are still range-bound, and until that changes, it’s going to be hard for any stock to make persistent progress. We’re OK doing some new buying, especially in some recent earnings winners (preferably on dips), but holding cash and keeping risk in check is necessary in this environment.

The good news is that we continue to see a broadening array of stocks firming up. Our Top Pick for the week is Tesoro (TSO)—while most energy stocks are still struggling, refiners are surging, and TSO looks like the leader. Buy on dips.

Stock Name	Price	Buy Range	Loss Limit
Vulcan Materials Company (VMC)	137.10	71.5-73.5	66-67
Tesoro (TSO)	0.00	82-85	75-76
Sprouts Farmers Market (SFM)	19.00	34-36	31-32.5
Lear Corp. (LEA)	0.00	105-108	96-98
Integrated Device Technology (IDTI)	0.00	19-20	17-17.5
GrubHub (GRUB)	140.03	38.5-40.5	35-35.5
E*Trade Financial (ETFC)	0.00	24-25	22-22.5
Tableau Software (DATA)	126.42	91-95	85-86
Ashland Inc. (ASH)	0.00	122-125	114-115
Amazon.com (AMZN)	2.00	362-372	335-338

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

Small caps shot higher last Friday after Fed Chair Jerome Powell indicated his willingness to consider a September rate cut.

On Friday, the S&P 600 SmallCap Index jumped by 3.8%, blasting through the 1,400 level that has served as intermittent overhead resistance in July and August. The index also broke through the 1,424 level, which the index jumped to following the weak jobs report a couple weeks ago.

A quick Holiday schedule note. We won’t publish our regular weekly update next Thursday since it will be Christmas and our office will be closed. Also, with the New Year’s holiday the following Thursday – and the first Thursday of January – we will push the January 2026 issue of Cabot Small Cap Confidential back a week, to January 8.

Happy Holidays! On to the market.

This small-cap stock has been a favorite of mine for years and remains a deeply undervalued pure play on private equity growth.

Stop us if you’ve heard this scenario before: The market gets a head of steam going, but after some inflationary reports, the Fed begins to jawbone the market, which leads to the market giving up the ghost. That happened at least a couple of times in 2022, so our antennae are up given the recent inflation reports and some tough talk from Fedheads last week. That said, once again, the bottom line is that most of the key evidence is still bullish, so while we’re honoring stops and aren’t piling in here, but we’re also holding onto names that are acting normally. We will drop our Market Monitor down a notch (to a level 6) to respect the recent dip, but we’re most interested in how the market responds now that it’s down near support.

This week’s list again has something for everyone, with our Top Pick a well-situated firm that’s helping to lead a group move and just reacted well to earnings.

Stocks remain under pressure as a mixture of geopolitical threats and inflation concerns weigh on the market’s growth-oriented segments. Meanwhile, as the major indexes test their January lows, we remain on the lookout for signs of bottoming and constructive setups—particularly in the tech sector. For now, though, we advise caution as this is still very much a stock picker’s market.



This week’s list includes a nice mix of key industries that are benefiting from current economic trends, including a few that have had excellent earnings reactions. Our Top Pick is a stock that should get a boost from a potential increase in travel and vacation demand in the coming months.

Housing sector stocks—including homebuilders, raw materials, and appliances—look stronger right now than any other major industry group. Their charts are bullish, with many of them showing signs of near-term upside breakouts. In that light, I’m expecting good things from Boise Cascade (BCC), D.R. Horton (DHI), Vulcan Materials (VMC) and Whirlpool (WHR) this month.

2015 is almost over, thank the Lord! The stock market lacked momentum, trading sideways virtually the entire year.