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Markets steadied this week as the political situation became clearer and prospects for Covid-19 vaccines becoming available in the first half of 2021 seem more promising. The Explorer portfolio performed well this week, with a couple of ideas breaking out to new highs.

The market’s attention has been squarely focused on jobs this week as updates on that front are likely to influence the Fed’s upcoming decision on interest rates next week. If it hikes (which is likely), it will mark just the third increase since the financial crisis.

The market seems to be a bit complacent given the risks of the virus spreading rapidly in China and elsewhere but we need to remain a bit cautious. There is some suspicion that China is downplaying the numbers.

The market’s slide this week has put our Cabot Tides back on the fence. That said, most leading growth stocks continue to act very well. All together, we’re holding our strong, profitable stocks and looking at new buys, while honoring our stops and keeping a bit of cash on the sideline.

Continue to lean bullish. The market’s rebound today after yesterday’s Italy-induced selloff was very encouraging, and both of our trend-following indicators remain bullish.

Current Market Outlook


The last week has been brutal, as the sellers have come out of the woodwork and driven most leading stocks down sharply. And this isn’t just a couple of bad days, either—the action since mid June has been spotty, with sharp pullbacks and low-volume, narrow rallies preceding this drop, which has seen a fair amount of abnormal action. The rest of the market isn’t nearly as bad off, and in fact we’ve seen rotation into beaten-down areas like industrials, financials and transports. But our focus is on the leaders, and given the widespread breakdowns, it’s vital to honor your stops and cut back on new buying. If the buyers return soon, we’re not ruling out this being one big shakeout, but the onus is on the bulls at this point, at least when it comes to leading stocks. We’re dropping our Market Monitor back to neutral.

Encouragingly, even amid the recent selling, we saw plenty of positive reactions to earnings and other pieces of news last week, many of which made it into this week’s list. Our Top Pick is Advanced Micro Devices (AMD), which is one of the strongest stocks in the market. Given the environment, start small and buy on dips.

Stock Name	Price	Buy Range	Loss Limit
Advanced Micro Devices (AMD)	82.24	18.2-19	16-16.5
Atlassian (TEAM)	182.16	67-70	63-64
GrubHub (GRUB)	140.03	120-125	108-110
HCA Healthcare (HCA)	137.60	117-121	107-110
Hi-Crush Partners LP (HCLP)	12.18	14.5-15.5	12.5-13
IQVIA Holdings (IQV)	157.93	115-120	106-108
Robert Half (RHI)	78.58	72-74	66-68
Stitch Fix (SFIX)	36.79	28-30	25-26
USANA Health (USNA)	133.03	124-129	112-115
Yext Inc. (YEXT)	21.32	21.5-22.5	19-19.5

From the start of October through the tail end of November, growth stocks (and, more generally, high relative strength stocks) were the dog’s dinner, flailing around even as the major indexes advanced. Now, though, with many stocks having etched two-month launching pads, the tone has improved—money is slowly (emphasis on slowly) coming out of defensive names and into faster movers. A bit more improvement and we’ll shift our Market Monitor into bullish territory, but for now, we’ll stick with our general “lean bullish” stance.

Another good sign is that, in this week’s list, we see many stocks that have shown recent power and are trading relatively tightly, a good sign of accumulation. Our favorite of the week is Harman International (HAR), a well-situated audio firm with very solid sales and earnings growth. The stock looks like it’s at a good entry around here.

Stock Name	Price	Buy Range	Loss Limit
Perrigo (PRGO)	0.00	151-154	140-142
Las Vegas Sands Corp. (LVS)	0.00	74-77	68-69
Illumina Inc. (ILMN)	289.74	97-101	90-91
Harman International Industries, Inc. (HAR)	0.00	78-80	70-71
Financial Engines (FNGN)	0.00	65-68.5	59-60
Deckers Outdoor Corp. (DECK)	141.68	83-85	70-71
Conn’s Inc. (CONN)	0.00	69-73	63-64
Baidu (BIDU)	0.00	165-170	140-145
AOL, Inc. (AOL)	0.00	42.5-45	39-40
Ambarella (AMBA)	52.79	23-24.5	20.5-21.5

As the market continues to strengthen, we are very close to having all of our market timing indicators back on the bullish side. In the meantime, most of our stocks look good, with many hitting new highs in recent days. In fact, I can find none to sell today.

As for today’s recommendation, it’s a fast-growing Chinese stock with a product you’re probably familiar with. It’s not a low-risk stock, but with the right timing, it could be a home run.

We enter the last few weeks of the year with plenty of momentum, and this week’s macro data-heavy slate (CPI and PPI reports, the latest Fed announcement) can only do so much damage to our portfolio on the heels of a very strong couple months. Nearly half our holdings – 10! – are trading at 52-week or all-time highs as of this writing. So today, we take another big swing on a mid-cap biotech newly recommended by Carl Delfeld in his Cabot Explorer advisory.

In this Month’s Issue of Cabot Early Opportunities I reveal a few tips to help you buy into IPOs at reasonable prices and we look at some compelling data that suggests the 150 to 180 day period after IPO just might be one of the ideal times to buy.

We also go inside five companies that look great right now, including a few software stocks, a consumer goods company and a MedTech stock that’s flying under the radar now, but not for long!

2022 was a year that left a lot of investors sitting on the sidelines, but that doesn’t mean we can’t take away some growth investing lessons and set the table for a better 2023.

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.

The S&P 500 walked higher for much of this week while small caps slipped from their recent highs.

We might get back to the pattern that existed in the first three weeks of the year (i.e., small caps outperforming) given weakness in some mega-cap names (i.e., TSLA and MSFT) after reporting and a little breather in small-cap strength.

Before I dive into this morning’s Cabot Options Trader Weekly Update, I wanted to bring to your attention that the Mintz family will be traveling to Europe this Wednesday through the following Wednesday.

And while I will be offline in terms of trading, answering questions, and the Daily Order Flow list, I will keep a distant eye on our positions and if we need to act, I will send instructions.