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Our emerging markets (EEM) signal continues to be positive and right on top of its 20-day moving average as China and other emerging markets are bumping along and lacking a decisive uptrend.

After the breakdown of trade negotiations with China and the escalation of tariffs, the market had a few ugly trading days, but now, it looks like we’re back in the saddle again.

Despite weakness in the broad market today’s addition is holding up very well. The company specializes in simulation software – programs that tell users what a physical object, or process, may or may not do.

Stocks stayed the course this past week, holding near all-time highs despite myriad existential threats out there (expanding Middle East war, a toss-up presidential election two weeks away, Q3 earnings season underway, etc.). Clearly, the bulls are in control right now. That can change at the drop of a hat – or an unexpected news event. But we have to go with the evidence in front of us, and right now it’s saying, “Buy.”

But it does make sense to add some better values to the portfolio. And this week we do just that, adding an undervalued small-cap utility stock that recently caught the eye of Clif Droke, Chief Analyst of the Cabot Turnaround Letter.

Details inside.

The market is in sell-off mode, with the Nasdaq down more than 7% in less than two weeks. But while growth stocks are in the dumps, value stocks are flourishing, up 5% year to date and outperforming growth by one of the wider margins in recent memory. So today, we sell out of a couple growth stocks that aren’t working and beef up our value exposure by adding the newest recommendation from Cabot Turnaround Letter Chief Analyst Clif Droke. It’s a company whose name you likely know, but a stock that was severely out of favor with Wall Street until recently – a perfect turnaround candidate.

Details inside.

Today’s featured stocks include two new additions to the portfolios and a stock that seems ready for a huge price rebound.

I find myself shaking my head when I read the words Efficient Market Theory or Efficient Market Hypothesis (EMH), because my experience doesn’t jive with that concept.

It’s been said that the four most dangerous words in investing are “this time, it’s different.” The stock market’s behavior is clearly pointing to things being different this time.

Today’s investment idea is in the biotech field. I’m stuck on these stocks for several reasons. One, they’re strong. Two, many actually boast growing earnings trends. Three, the group has failed many times in past decades to put together a lasting advance, so maybe now is the time. Four, there will be tremendous demand for health-improving products as baby-boomers age; biotechnology offers the best chance we have to stay healthy.

Current Market Outlook


The first three weeks of December were a complete disaster for the market, with most major indexes falling 16% to 19% during that time. The good news is that, after some historic oversold extremes (we saw three straight days of more than 1,000 stocks hitting new lows on both the NYSE and Nasdaq!), stocks have finally begun to bounce; ideally this upmove lasts for at least a couple more weeks and gives the market a low to work from, while some new leadership takes pole position for the next sustained uptrend. Still, as we have all year, we advise just taking things as they come—right now, the trends of the major indexes and the vast majority of stocks are pointed down (just 15% or so of stocks are north of their 200-day lines), so we’re sticking with a defensive stance and waiting patiently for the bulls to make a stand.

That said, we’re still seeing a good number of resilient ideas, including many with great growth stories. If you’re looking to nibble, our Top Pick this week is Planet Fitness (PLNT), which has a unique, independent growth story that continues to attract big investors.

Stock Name	Price	Buy Range	Loss Limit
Alteryx (AYX)	132.78	56-60	49-51
Atlassian (TEAM)	182.16	85-90	75-78
Broadcom Limited (AVGO)	266.26	244-250	220-225
Crocs (CROX)	0.00	25-36.5	22-23
Deckers Outdoor Corp. (DECK)	141.68	123-128	111-113
Elastic (ESTC)	86.17	67-71	58-60
Planet Fitness (PLNT)	0.00	51.5-54	46-47.5
ServiceNow (NOW)	341.86	173-180	157-161
Tencent Music Entertainment (TME)	18.41	12.7-13.5	11-11.5
Zscaler (ZS)	126.22	37-39.5	33.5-35

We had been writing about some of the secondary yellow flags that had been popping up of late, mainly due to the incredible rise in many growth stocks in both price (well above moving averages) and time (the biggest winners got going back in September), as well as near-term sentiment (getting giddy, not just with growth stocks but everything post-election).

As we roll into the fourth quarter, it’s mostly the same story for the stock market—the indexes continue to grind higher, led by the big-cap indexes (up more than 1% on the week coming into today), though all the indexes were in the black coming into Friday.

It’s been another hectic but positive week in the market, with the major indexes pushing back to their prior highs or, in some cases, out to new high ground after this morning’s inflation report, albeit with another wobble in the middle of the week. Still, when looking at the evidence, the top-down measures remain positive.

It’s looking like a flat-ish week in the market after today’s down opening, with the big-cap indexes doing slightly better but not much movement in this pre-holiday week. Under the surface, we saw a bit of re-rotation, with some safer areas (like consumer staples) softening while growth stocks re-engaged a bit.

Following last week’s repeated distribution (both selling on gaps up and then Friday’s big down day), the major indexes have enjoyed a solid snapback, led again by the Nasdaq (especially) and the S&P 500, though all the indexes were up.

In the past week or two we’ve written that near-term risk is elevated for a few reasons (complacent sentiment, indexes extended to the upside, late September is almost always tricky, etc.), and this week we saw some of that come home to roost—after a good Monday, the indexes pulled in and a few highfliers hit air pockets while the broad market took some hits, too.

The major indexes were having another very quiet (and modestly positive) week before last night, with the Israeli strikes against Iran causing oil prices to spike and the market to take on some water. When looking at the week as a whole, the damage hasn’t been bad (most major indexes are flat to down a bit as of this morning), though obviously what happens from here will be key.

The Middle East flare-up started a week ago today, but so far, the market has been very calm, cool and collected despite differing headlines and rumors. As of this morning, most indexes are green on the week, though by a bit less than 1%.

The extreme environment has continued this week, with last Wednesday’s tariff reveal leading to a massive selloff that took the market down into Monday morning, though there has been support since, thanks in large part to Wednesday’s tariff delay that caused the market to pop higher.