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The market remains in an uptrend, though the correction that started last week may do a little more damage. If so, try to take advantage of it, remembering that buying low is the goal.
Today’s stock is a name you know—a name all Americans know—and I think it’s a good buy here after correcting 39% last fall. Crista Huff is the Cabot analyst who recommended it most recently, in part on fundamental grounds, and my reading of the chart confirms her conclusion.
As for the current portfolio, we continue to make great progress, but there’s always room for improvement. The only changes this week are two upgrades from Hold to Buy. Details inside.

Emerging markets have stayed strong into the second quarter, with China leading the way and calming markets by delivering 6% economic growth.

Inside this issue is a new recommendation with a play on a market some estimate as large as $94 trillion over the next two decades. The company delivers a key ingredient that turns steel into “super steel” and plays a key role in electrifying the grid.

Every three to six months, I will revisit some of the important themes and strategies used by Cabot Options Trader since I became the editor.

The good news is that many cannabis companies have been releasing their second quarter reports and the results have been excellent.

My stock idea today takes its cue from water. Good old H2O. Water is a daily requirement of all living things, and the earth has a limited supply. So as the world’s population increases, proper management of water resources becomes increasingly critical. And where are both the population and the use of water increasing especially fast? China. So my idea today is a very young stock, which came public on June 24 and just earned a spot in Cabot Top Ten Report.

Current Market Outlook


Earnings season. The upcoming U.S. elections. Spiking COVID positives and accompanying Europe lockdowns. All told, what was a cleaner situation a couple of weeks ago has turned into one with a lot of crosscurrents, and that has caused a buyers’ strike of sorts, with the major indexes and many leaders pulling back of late. It’s not a disaster, but today’s action has put the intermediate term back on the fence; basically, it looks like the market is still in a consolidation phase after the big March-through-August rally. It’s a similar deal with leading stocks, as many have taken on water, though few have cracked. (In fact, we see a lot of good setups out there should buyers step up soon.) All in all, we’re not making any huge moves, but we’ll knock our Market Monitor down a notch and keep a close eye on things.

This week’s list is an interesting mix of growth and turnaround situations, including a couple that have their hands in both cookie jars. Our Top Pick is Align Technology (ALGN), which just galloped out of a two-year base after earnings. Aim to buy on weakness.

Stock Name	Price	Buy Range	Loss Limit
Align Technology (ALGN)	448.51	420-440	375-390
AAXN (AAXN)	101.69	99.5-102.5	90-92
Exact Sciences (EXAS)	107.06	103-107	91-93
The Gap, Inc. (GPS)	17.75	19.5-20.5	17-17.5
General Motors Company (GM)	36.83	34-36	31-32
GrowGeneration (GRWG)	17.75	16.5-18	14-15
MercadoLibre, Inc. (MELI)	1270.86	1180-1240	1070-1110
NIO Limited (NIO)	25.86	23.5-25	20.5-21.5
Shift4 Payments (FOUR)	55.98	51.5-54	46-47.5
Square, Inc. (SQ)	176.77	164-171	148-152

For many weeks the selling pressure was overwhelming, so the first thing we needed to see was the bulls at least put up a fight—and they did two weeks ago, with lots of hectic action after some oversold extremes. And then we saw some lift for the first time in a while, with many beaten-down names finally getting off their knees and a few stocks pop on earning. All in all, we consider it a good start, with the January 24 likely representing a workable low that the market can build off of.



We’ll take it, but in terms of the overall picture, the bulls still have more work to do: The intermediate-term trend of the major indexes remains down, and most individual stocks are still buried beneath major resistance (just 37% of NYSE and 19% of Nasdaq stocks came into today above their 200-day lines). Near-term, we do think the odds favor some further upside, but the rest test will come as indexes and potential leaders run into resistance; as has been the case, we’re not opposed to starting positions in a potential leader or two, but we continue to think a defensive stance remains mostly appropriate until we see some “real” buying and positive trend changes. Our Market Monitor remains at a level 4.



This week’s list has a variety of recent earnings winners and other setups ahead of their reports. Our Top Pick is Stifel Financial (SF), which (interestingly) is part of a strong Bull Market stock sector and recent surged back to its peaks after a solid Q4 report.

It’s about at this point in a bear phase where investors start to throw up their hands. But it’s important to stay in touch: While the past two weeks brought most stocks lower, the selling was focused on areas that hadn’t yet gotten hit, while some of the “leaders” of this bear phase are actually trying to hold up. If you want to play a bounce, we actually think some of those areas could prove fruitful, though of course we’d keep things small and stay in an overall defensive stance.



This week’s list reflects all of this, with names from a handful of areas that have been forming higher lows in recent weeks (or months) and even showed some solid support (or even upside volume) of late. Our Top Pick is a Chinese EV player that’s showing excellent power and sports fantastic growth.

The past week or so definitely showed some very encouraging action, with one of the key “blastoff” indicators we track turning green on Thursday. So does that mean we’re off to the races? Well, we wouldn’t go there, at least not yet: The intermediate-term trend of the market and most stocks are still down, and it’s not unusual at all to see some near-term wobbles after this kind of blastoff signal. All in all, we think there’s enough good vibes to extend your line a bit—but we don’t advise buying hand over fist as we’re still looking to see added confirmation. We’ll bump up our Market Monitor two notches to a level 5.

This week’s list is full of resilient names, though many have earnings coming up, so be aware of those dates. Our Top Pick has a great story, great numbers and a resilient chart, with shares back near their highs after a bullish earnings reaction. Start small here or on dips.

We’ll let everyone else fight it out over the meaning and truthfulness of the DeepSeek revelations—as always, we’ll stay focused on the actual evidence, and here’s what we see: First off, the broad AI infrastructure areas look very iffy; the odds favor most chips, networking and electricity stocks are in the so-called penalty box. That said, the rest of the market took on water today but didn’t look abnormal. We do view the dramatic action as a yellow flag but we’re also not panicking as many of the names that had begun to perk up/break out are still acting well enough. We think it’s prudent to drop our Market Monitor back to a level 6 and take things on a stock-by-stock basis from here.

This week’s list does have a couple of AI-related names that got whacked, but the rest are from other areas that look fine. Our Top Pick is a name that looks like it’s finally, decisively changed character. Start small and aim for dips.

From a top-down perspective, the market remains in good shape, but the real action in the past few weeks has concerned leading stocks, and today many hit air pockets, with plenty of short-term abnormal action (and some intermediate-term abnormal action, too). So where do we stand? One day doesn’t mean the party is over, and frankly, we see some stocks that are approaching decent risk/reward entries, but today is a red flag for some names and is a reminder to manage your portfolio (partial profits, respecting stops) and to aim for decent entries. We’re not panicking, but we’ll lower our Market Monitor to a level 7 and see how things go from here.

This week’s list has a nice mix, with some winners that have been resting for a few weeks alongside some names that have recently shown power. Our Top Pick is a name we’ve kept an eye on for a long time and is now beginning to emerge after a tough mid-year stretch.

After a huge run, last week definitely showed some short-term character changes for many stocks, especially leading titles, with some flashing legitimate abnormal action; even among the top-down evidence, we’ve seen sluggishness, with the broad market showing wear and tear as sentiment remains relatively buoyant. That said, there are still plenty of stocks either holding their own or still doing well, too, including some growth-y themes that are seeing fresh buying of late, a sign big investors aren’t going into hibernation. When you put it all together, we do think paring back some and seeing how things play out makes sense, but it’s as important as ever to take things on a stock-by-stock basis. We dropped our Market Monitor to a level 6 and will leave it there today, but we’re flexible and could ratchet it higher if growth stocks start to rebound strongly.

This week’s list has a wide assortment of names—but nearly all of them are growth-oriented, which we take as a good sign. Our Top Pick is a mega-cap that staged an awesome breakout on earnings last week. Near-term wobbles are possible, but we think big investors will support any dip.

There’s little doubt the news has gotten worse, with the U.S. debt downgrade, renewed U.S-China trade tensions, another hike in steel tariffs announced last week and a big pickup in war uncertainty over the weekend … but so far, the market has handled itself decently, with some wobbles (mostly among the broad market) but overall a quiet-ish consolidation compared to the recent run-up. To be fair, that can always change, but given everything, we’re pleased with the action thus far. We’ll again leave our Market Monitor at a level 7 as we wait to see which way the market breaks from this tight range.

This week’s list has a ton of overall strong charts with recent tightness, just like the market. Our Top Pick is a steadily growing emerging blue chip in the software space that just left behind an endless consolidation with a powerful earnings gap.

The calendar has flipped, and so far the early-January effect has been in effect, with some volatile ups and downs, as well as some sharp rotation into and out of certain areas. Still, we always go with the evidence, and stepping back, not much has changed: For the overall market, the evidence is tilted higher, though growth stocks look worse, still in intermediate-term sideways-to-down phases for most names, but it depends where you look. Overall, we’ll leave our Market Monitor at a level 7 from here, but we’re flexible and will be keying off any breakouts or breakdowns among individual stocks.

Our first list of the New Year is a mix between strong growth titles, aerospace/defense-related names and cyclical stocks. Our Top Pick is a blue-chip growth name that has a history of stair-stepping higher over time—and whose stock just broke out from a three-month range last week.

It’s not perfect, but the market has been putting one foot in front of the other in recent weeks, with more stocks acting well, more breakouts and the indexes refusing to pull in much. As always, we’re really just taking our cues from the trend of the market (intermediate-term trend up; long-term trend still down but getting close to flipping) and the action of leading stocks (better and better, but still not a bunch of new highs). We’re nudging our Market Monitor up to a level 6, though we’d still favor going slow overall and, ideally, entering on weakness.


This week’s list is another solid batch of stocks with excellent charts, including many that have really stormed ahead on big volume. Our Top Pick looked like it was done for a couple of months ago, but has stormed back to new highs thanks in part to a great post-earnings reaction.

The market hasn’t completely changed character at this point, but the recent action suggests that we’re at a key juncture here: After testing its October high, the Nasdaq has been fading, dragging down most other indexes while the number of new lows has picked up right off the recent high, all while defensive areas perk up—though, we’re also seeing many growth stocks hang in there well, with a few testing new high ground. All told, we’re again leaving our Market Monitor at a level 7, but we think the next few days will tell the tale of whether some new leadership can emerge … or whether a more general corrective phase gets underway. Stay tuned.

This week’s list has lots of strong names, including a few early earnings winners. Our Top Pick has a solid aerospace story but, like other names in this issue, is moving into the AI power space with some big future deals. We think nibbling on some here or on a further pullback makes sense.

It’s been a challenging year for investors in cannabis stocks, but the good news today is that the stock market as a whole is stronger, and cannabis stocks are trending higher as well, especially in Canada, where the stocks were thoroughly oversold.

So I’m adding two new Canadian stocks to the portfolio.



Full details in the issue.