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There’s quite a bit of discussion on stock market trends pertaining to energy stocks, financial stocks and takeover stocks.

As we like to say “up is good,” so last week’s snapback from the major indexes and many stocks and sectors is certainly a good thing, and we like that many stocks have actually built six- to 10-week launching pads. Thus, if the rally can continue, there should be plenty of names to sink our teeth into assuming earnings season goes well. However, first things first: The market and most stocks aren’t out of the woods yet, having “only” rallied back into resistance, and earnings season is still in full swing. We’ll leave our Market Monitor at a level 6, but we’ll change that quickly if the bulls show some follow-on buying.

This week’s list is a hodgepodge of earnings winners, resilient growth names and some commodity ideas as well. Our Top Pick is a volatile chip equipment maker with a system that’s perfectly suited for the AI revolution. Earnings are due next week, so keep it small here and see what the quarterly report brings.

The trends of the indexes remain up and the leading growth stocks remain firm, although many big tech names are showing signs of entering what appears to be an overdue pullback.

Volatility is also on the rise and a classic split tape environment is emerging, with some sectors weakening while others show strength. We’re keeping a weather eye out for any sudden changes, continuing to hold our winners, building some cash, but also taking advantage of recent sector rotation. This week’s Top Pick is a name making waves in the app publishing market while also harnessing the power of AI to grow its customer base.

While 2017 was one of the least volatile years ever for the market, 2018 has seen volatility return—with a vengeance! Early February brought the greatest point decline in history for the Dow, while yesterday brought the biggest one-day advance since August 2015 for the Dow, S&P 500 and Nasdaq.

Today, my recommendation is outside the U.S., and outside China, too! In fact, my recommendation is in Brazil, where a young airline is enjoying rapid growth and the chart is positive.

V.F. Corporation (VFC) announced the sale of Supreme, the famed streetwear brand, to EssilorLuxottica, the owner of Ray-Ban, for $1.5 billion, leading to a 13.6% surge in VFC’s shares on Wednesday. Supreme, a New York City skate shop turned global fashion icon since 1994, became renowned for its exclusive collaborations with luxury brands like Louis Vuitton and Nike. VFC acquired Supreme in 2020 for $2.1B, hoping to leverage its trendy image to boost its portfolio. However, the huge debt load and miserable margins took their toll, and by last year the company had written down two-thirds of Supreme’s value.

Xerox (XRX) reported significant year-on-year decreases in both revenue and earnings on Tuesday, showing a net loss of -$113M (versus estimates of +$49.5M) on revenue of $1.5B, down 12.4% from last year’s 1Q. Despite the disappointing results, CEO Steve Bandrowczak remains optimistic about the company’s restructuring strategy, which aims to align Xerox more closely with market demands and improve operational efficiency.

Gannett (GCI) reported after the bell yesterday, beating on revenue but missing earnings expectations by 21%. The company posted an $84M loss on $635M in income but reiterated guidance to 10% growth in its digital division, keeping overall revenue declines to the low to mid-single digits. CEO Michael Reed reiterated the focus on digital transformation, with revenues from that side of the business likely to comprise 50% of Gannett’s income by 2025.

WHAT TO DO NOW: Remain defensive. Near term, we are seeing a couple of rays of light, including a developing positive divergence from our Two-Second Indicator and some legitimate dips in some reliable sentiment measures, so we’re not sticking our heads in the sand as the vast majority of primary evidence and our market timing indicators are negative, with the indexes so far having trouble finding much support. We could do some nibbling if the market finds a low it can work off of, but in the meantime, we advise staying mostly on the sideline and letting the sellers finish up their work. We have no changes tonight, and the Model Portfolio’s cash position is 83%.

WHAT TO DO NOW: The market tried to rebound today after Nvidia’s earnings last night—but big investors stepped up to sell, driving the market and many growth stocks into the red. Our Cabot Tides have now joined the Two-Second Indicator in negative territory, which has us remaining cautious and holding plenty of cash. In the Model Portfolio, we’re going to book partial profits in the ProShares S&P 500 Fund (SSO), selling one-third of our stake and holding the rest. That will leave us with a cash position of 62%. Details below.

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Last week was a decisive week, in our view. Not only did the major indexes score solid gains, but many individual leading stocks put on a good show, telling us the bulls are finally joining the party. Of course, with the meat of earnings season still coming up, there are bound to be ups and downs in the weeks ahead. But we’re growing more confident that the bear phase from October of last year through March of this year—punctuated by the collapse of Bear Stearns—is coming to an end. This week’s Top Ten is once again heavy in the commodity areas, which are leading the market higher. We do believe traditional growth stocks will appear if this market is going to run, but for now, the buying is clearly in metals, steels, oil and gas. Our favorite of the week may be a surprise. It’s U.S. Steel (X), a big, old firm, but one that might be best positioned to take advantage of higher steel prices in the months ahead. Try to buy on weakness.

Stock Name	Price	Buy Range	Loss Limit
AGU (AGU)	0.00	75-85	-
BUCY (BUCY)	0.00	117-120	-
EAC (EAC)	0.00	43-46	-
HP (HP)	0.00	51-54	-
MEE (MEE)	0.00	49-53	-
MMR (MMR)	0.00	22-24	-
PXD (PXD)	0.00	53-58	-
SOHU (SOHU)	0.00	50-55	-
WFT (WFT)	0.00	76-82	-
X (X)	0.00	145-155	-

Today’s featured recommendation is a low-risk financial stock that will give the portfolio some stability (and income). And since the portfolio doesn’t currently own a bank stock, this will provide some healthy diversification.

In this issue, I identify the bluest of blue chip energy infrastructure stocks at a dirt cheap price with a 6% yield. Business is booming and it is only a matter of time until the market starts rewarding the stock.

Nobody has missed their chance to buy low and catch a long overdue run-up in some great stocks. There are lots of great opportunities listed in this week’s update.

In the April Issue of Cabot Early Opportunities we take heed of the market’s recent volatility by digging into a wider-than-normal range of emerging opportunities.

We have gold mining, AI website development tools, healthy fast-casual dining and a few things in between!

As always, there should be something for everybody.

In the August Issue of Cabot Early Opportunities, we talk about what happened to the summer stock rally and dig into five companies selling everything from coffee to sporting goods to mobile advertising tools.

Enjoy!

The MSCI Emerging Market index (EEM) is up 9% so far in 2019 but has basically hit the pause button in March.

Benjamin Graham, the father of value investing, taught Warren Buffett at Columbia.

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