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The market’s evidence has worsened of late, with our Cabot Tides flipping to bearish earlier this week, and going along with that is a dearth of stocks hitting new highs. To be fair, it’s not all bad news — we’re seeing fresher leadership hold up relatively well, even during this latest decline, while the longer-term signposts are still positive — but we continue to think a relatively cautious stance is appropriate. Since the last issue, we’ve had a couple sells and three buys (repositioning the portfolio into some more resilient names), but we’re still holding onto about 44% in cash.

In tonight’s issue, we go over all our positions (including the new buys, which we think are battling for pole position for the market’s next advance) and talk about one simple chart tool that can help you spot other potential leaders going forward, too.

This is, almost certainly, our last update before the Fed starts slashing interest rates for the first time this year. According to the CME Group’s FedWatch Tool, there is now a 100% chance Jerome Powell and company will cut rates by some amount on September 17; 90% think it will be by 25 basis points, another 10% think it will be by 50 basis points, much like last September.

The market’s rebound from the August 5 mini-panic has been unusual—in a good way, with a straight-up advance that’s recouped most of its prior decline, given up very little of its gains along the way, and has been led by a gaggle of growth stocks that have powered ahead on earnings. Now, we’re not totally free and clear here, and some short-term wobbles could easily come; by our measures, the intermediate-term trend is sideways and defensive stocks are percolating, so there’s more work to do. All in all, we’re putting a little more money to work tonight but will still be holding just shy of 40% in cash as we see if the market can further confirm a new uptrend.

With the broad market making new highs in the face of renewed tariff threats, it seems investors are willing to shrug off macro concerns, at least for now.

We’ll heed the bullish action by stepping into three new positions this month, but hedge our bets by making one of them a half-sized position. We also add two new names to our Watch List.

Today brought some selling in growth stocks, mostly egged on by weakness in some “old” leading groups, but the evidence (both market-wide and among leading stocks) is still bullish, so we are, too, though we continue to keep our feet on the ground and manage our portfolio given things are a bit euphoric. Today, we’re filling out one of our positions, leaving us with 13% cash.

Elsewhere in today’s issue, we go over some intriguing new ideas (including one peer of a name we own that looks terrific), and answer some of the barrage of questions we’ve been getting, with some talk about the weakness seen in the formerly strong chip group.

It’s been a rough few years for the housing sector.

Ever since the Fed raised interest rates to multi-decade highs in 2022/2023, both housing starts and existing home sales have fallen off a cliff in the U.S. Housing starts peaked at 1.82 million in April 2022; they dipped as low as 1.28 million this May, a 30% dropoff. Existing home sales have fallen even further, from a 6.6-million-unit peak in January 2021 to a 3.9-million-unit nadir this June – a 41% haircut.

The market has been volatile in recent weeks, but the two biggest pieces of evidence to us have been the continued longer-term uptrend, as well as the buoyant action among many individual growth stocks, a few of which we own; while they can get tossed around, they have tended to bounce back strongly as soon as the pressure comes off the indexes. That said, there are still some flies in the ointment out there, with many broad growth measures just so-so we’re not cannonballing into the pool, but we are putting some more money to work tonight, averaging up in a current holding and adding one more potential leader.

Current Market Outlook


As the year winds to a close, nothing has changed with the market’s overall stance—big picture, it’s a bull market, and numerous factors tell us that the uptrend has farther to go; the odds favor higher prices when looking months down the road. Shorter-term, though, there are also many signs that tell us risk is elevated—that doesn’t necessarily mean a huge correction is on tap, but we think it’s safe to say that the next few weeks are likely to be more challenging than the past few weeks, with potholes, rotation and news-driven moves possible. As we’ve been writing, that’s no reason to bail out, but being discerning on the buy side (good entry points, starting small, etc.) and booking some partial profits makes sense.

Our last list of 2019 is a broad mix of strong stocks, including turnarounds, recent breakouts and fresh setups. Our Top Pick is Crocs (CROX), which is benefiting from some rotation into retail titles and a string of solid quarterly reports.

Stock Name	Price	Buy Range	Loss Limit
Bed Bath & Beyond (BBBY)	0.00	16-17	14.3-14.9
Cardlytics (CDLX)	0.00	58-61	51-52.5
Carvana (CVNA)	82.90	91-94	83-85
Crocs (CROX)	0.00	39-41	35.5-36.5
Floor & Décor (FND)	68.03	49-51	45.5-46.5
GSX Techedu (GSX)	97.59	19.5-20.5	17-18
Luckin Coffee (LK)	0.00	34-36.5	30-31.5
Paycom Software (PAYC)	0.00	257-267	237-241
Sea Limited (SE)	132.86	38-39.5	34-35
United Rentals, Inc. (URI)	0.00	163-167	150-152

Current Market Outlook


Sellers finally landed a few punches last week, with many tech-related growth stocks finding resistance and the big-cap indexes losing a little ground. Given the big run of late, lots of speculation and signs of greed, we have our antennae up for abnormal weakness—but so far, there hasn’t been much (if any), with the pullbacks in the indexes and individual stocks appearing normal and other timing indicators (number of new lows, etc.) looking fine. In fact, some solid entry points could appear with a bit more weakness! We are seeing continuing rotation into more cyclical areas and out of some growth names, but the trends of just about all indexes and leaders are up, so we remain mostly bullish.

This week’s list has stocks from many different nooks and crannies of the market. Our Top Pick is Guardant Health (GH), from the strong medical area, as it’s come under major accumulation this year. It’s a bit extended so start small and/or aim for dips.

Stock Name	Price	Buy Range	Loss Limit
Cimarex Energy (XEC)	49.1	44.5-47.5	39.5-41.5
Enterprise Products Partners L.P. (EPD)	23.3	22-23.5	19.5-20.5
Farfetch (FTCH)	58.8	56-58.5	51-52.5
Guardant Health (GH)	160.0	152-162	132-137
Halozyme Therapeutics (HALO)	48.3	45-48	40-41.5
Shake Shack (SHAK)	111.7	106-110	91-94
Sonos (SONO)	27.0	25-26.5	22-23
TG Therapeutics, Inc. (TGTX)	50.2	46.5-49.5	41-42.5
The Timken Company (TKR)	85.0	81-85	74-76
Upwork (UPWK)	40.7	37.5-40	33.5-35

Cabot Small-Cap Confidential is a limited-circulation advisory for investors seeking profit opportunities in high-potential small company stocks.

For the past two months, the market has been positive by most top-down indicators, but it’s gotten a lot trickier as time has gone on, with many growth areas cracking intermediate-term support, with repeated bouts of rotation and with upward progress slowing down. The good news is that even after today’s broad selling, the intermediate-term trend remains pointed up and many Top Ten stocks are holding their own, but just going with what we’ve seen, it’s getting tougher to make (and keep) much money. Right here, we’ll keep our Market Monitor at a level 7, but we think holding some cash and taking some profits on the way up remains a good strategy.

Despite the rotation, we did see some earnings winners last week among growth stocks, and this week’s list has a few alongside names from other areas of the market. Our Top Pick is a smaller name that broke out powerfully last month and has a solid story—shares are a bit thinly traded, so start small and aim for dips.

For the most part, the story remains the same with the market, as most of the evidence is positive, though not necessarily powerful. The good news is that, for the first time in a while, we’re starting to see a little broadening in leadership: AI-related names remain strong, and now more medical and online names are starting to shape up along with some more cyclical plays. Today, we’ll stick with our current stance—Market Monitor at a level 7—though we could tweak that if we continue to see more names emerge.

This week’s list has something for everyone, from strong Ai-related names to cyclical outfits, and from those in strong uptrends to those with nice setups. Our Top Pick has the look of a potential liquid leader and after seven weeks of choppy action, is starting to break out nicely.

The market’s rebound has been very impressive, though there are a couple of flies in the ointment (we’re not huge fans of defensive sectors rallying strongly) and this week looks like a good test for a couple of reasons: First, there are some key quarterly reports coming out in key technology areas, and trend-wise, many growth-oriented measures are closing in on five-week highs, which could turn the intermediate-term trend up … if all goes well. For now, nothing has officially changed: If we see more breakouts and further upside, it would obviously be bullish, but while some retrenchment from here wouldn’t necessarily be bearish, it would be a sign the market likely needs more time to set up. We’ll leave our Market Monitor at level 6 this week.

This week’s list is a bit more diversified than the past two weeks, and for our Top Pick, we’re going with a name that’s very strong following quarterly results, has triple-digit growth and a great story—if you enter, be sure to keep it small and use a loose stop.

I have to admit, a couple of weeks ago, on our Cabot Street Check podcast, Chris Preston, host and Chief Analyst for Cabot Value Investor, and I discussed the possibility of a recession and I commented that I thought recession fears were mostly over.

Well, I’m going to reconsider that (a bit) after Monday’s 1,000+ point loss in the Dow. Last week’s jobs report came in at 114,000 jobs—considerably less than the 185,000 expected—spooking the markets and causing economic gurus to once again bring up the possibility of the dreaded “R” word. Additionally, the unemployment rate edged up to 4.3% and manufacturing and construction spending were also less than expected, furthering economic worries.

After a very sharp dip for most major indexes and especially the Nasdaq, a bounce is underway. When looking at individual stocks, we’re fairly encouraged with what we see, which is a good sign that there will be leadership to sink our teeth into once this correction finishes up. But, at this point, we can’t conclude the correction is over, with most major indexes and key measures still buried under resistance (such as 50-day lines) and with formerly strong areas (chips, etc.) still looking suspect. We’re not opposed to a nibble here or there, but we continue to think remaining patient will pay off. We’ll move our Market Monitor up to a level 5, but still think keeping plenty of cash on the sideline makes sense.

This week’s list is chock-full of names that are acting great, most of which have recently shown big-volume strength after earnings, though we prefer to aim for dips in many cases. Our Top Pick is a familiar name that staged a classic earnings-induced breakout last week.

Housekeeping: Seeing as next Monday is Presidents’ Day, your next issue will be Tuesday, February 18.

When we look at the overall evidence, we continue to see more good than bad out there: Most indexes are testing the top end of their ranges; we see more breakouts than breakdowns among growth stocks; earnings season has gone well so far; and all of this has happened as headline uncertainty has crept into the picture. That said, we’re still waiting for buyers to truly step up, as most peppy stocks are still seeing lots of selling on strength and most every index is trending sideways. We’ll leave our Market Monitor at a level 6 for now but could move that meaningfully by week’s end depending on how things go.

All that said there are opportunities out there, and this week’s list has many of them, with a ton of recent earnings winners. Our Top Pick has turned super-strong after earnings as investors look forward to what should be a huge 2025 and 2026.

It’s now been a couple of months since the market’s April low, but instead of a firm uptrend that’s telling you big investors are diving in or adding to positions, we’re seeing lots of split action. Whether this is a fresh launching pad for most stocks or near-term toppy action that will lead to a summer slump is anyone’s guess—right now, we’re just following along with the evidence, which means holding and targeting stocks that are fresher and under accumulation, raising stops and dumping names that crack and holding a chunk of cash given the sloppiness seen in the broad market. We’ll leave our Market Monitor at a level 7, but once again, it’s mostly about what you own.

From solar to chips to biotech to aerospace, this week’s list is another that has something for everyone. Our Top Pick is a turnaround-type chip player whose stock has decisively blasted off in late April as business is set to turn up.

The market had yet another mostly quiet, mostly positive week, and the vast majority of the top-down evidence is still in good or great shape. That said, there’s no doubt things are a bit extended in time and that more stocks and sectors are beginning to lag, which is one reason we’re not flooring the accelerator. Another is the fact that earnings season really picks up this week—35%-plus of the S&P 500, along with more growth leaders, are reporting, which will obviously be key. Don’t get us wrong, we’re overall bullish, but near term we’re picking our spots. We’ll leave our Market Monitor at a level 7.

This week’s list has a wide variety of names, with many types of names and setups. This week’s Top Pick has earnings this week, but after a huge-volume ramp, shares have dipped on low volume to the 25-day line—we’re OK with a small buy here or on dips with a loose stop.

It hasn’t been any dramatic one- or two-day event, but the evidence has moved steadily toward the bullish case during the past couple of weeks. We will say that there are more than a few secondary factors that aren’t ideal, including the fact that interest rates are going up nearly every day, so we don’t think now’s the time to cannonball into the pool, per se, but we’re mostly holding our winners (booking the occasional partial profit on the way up) and gradually extending our line as new opportunities emerge. We’re lifting our Market Monitor to a level 8.

This week’s list is definitely growth-ier than the past couple of weeks, which is no surprise given the strength seen in that area. Our Top Pick has re-emerged after a brutal summer correction and has big leverage to a strong equity and crypto market. It’s not for the faint of heart, so use a loose stop if you go in.

Given where we stood a month ago, you couldn’t have asked for much better action from the market—now it’s a matter of following through: The intermediate-term trend is on the fence, and many individual stocks have been (possibly temporarily) rejected near obvious resistance levels. Thus, if we see further strength this week, turning the trend up for many indexes and allowing some fresh leaders to take off, we’ll look to extend our line—but if the sellers dig in, more patience will be needed. Right now, we’re sticking with our Market Monitor at a level 5, and we’ll adjust if need be in the days ahead.

This week’s list has a lot of strong names, including a few that have recently reacted well to earnings. Our Top Pick is one of the stronger names in one of the strongest growth areas (cybersecurity). We’re OK starting small here.