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Current Market Outlook


Last week, the selling that had been concentrated in growth names spread to the rest of the market through Wednesday, though a late-week bounce helped a bit. Still, not much has changed with the overall environment—growth stocks remain in the dumps, and while bounces are possible (many fell 20% to 30% in just the past three weeks), there’s a lot of damage to repair. The broad market is obviously in better shape, where we still see some good opportunities (mostly after bullish earnings pops), but even there the action is turning choppy and challenging, with news-driven moves, rotation and whipsaws. Overall, we’re fine taking a swing or two at stocks and sectors that are still in favor, but we also think it’s best to stay relatively cautious until we see broad buying power emerge.

This week’s list is almost all turnaround and cyclical-type stories, and our Top Pick is International Game Technology (IGT), which is benefiting from both the reopening of casinos and also the growth wave in sports betting.

Stock Name	Price	Buy Range	Loss Limit
AutoNation (AN)	105	101.5-104	91.5-93.5
Callaway Golf (ELY)	34	32.5-34.5	28.5-29.5
Camping World Holdings (CWH)	45	44-46	39-40
CF Industries (CF)	55	52.5-55	47-48.5
Cimarex Energy (XEC)	74	71.5-74.5	61-63
International Game Technology (IGT)	22	21-22.5	17.5-18.5
Leggett & Platt, Incorporated (LEG)	56	53-55	49-50
Summit Materials (SUM)	34	31.5-33	28.5-29.5
WestRock Company (WRK)	62	58.5-60.5	53-54
Yeti Holdings (YETI)	86	83.5-86.5	76-77

Current Market Outlook


Our intermediate-term trend model has effectively been neutral for months, with the big-cap indexes acting pretty well but most other areas chopping sideways. Today, though, the sellers got their act together, with the S&P 500 decisive diving below its 50-day line and small caps actually falling below their 200-day line! That’s certainly a change in character and, for the first time in months, turns the intermediate-term trend down. Of course, the evidence hadn’t quite lined up for a while now, so we’ve been playing it more cautiously than normal, but now it’s time to step carefully and see how this plays out. As for positive tidings, there are some: The bad news out there (Chinese real estate) is obvious, and looking at individual stocks, many growth titles are now holding up far better than the Dow or S&P 500 (a marked change from earlier this year). Thus, we’re still holding our resilient names and are OK doing a little buying as stocks pull in to support, but it’s not time to be a hero, with the focus shifting more toward preserving capital. Our Market Monitor has moved to a level 5.

If you are aiming to put a little money to work, you want to look for names that have recently shown good-volume buying. Happily, this week’s list has many names in this club, and our Top Pick is Lululemon (LULU), which is emerging from a long rest and has held its recent earnings gap despite the market’s dip.

Stock Name	Price	Buy Range	Loss Limit
Align Technology (ALGN)	710	685-705	640-650
Catalent Inc (CTLT)	136	129-133	121-123
Chesapeake Energy Corporation (CHK)	60	58-60	52-53
Cloudflare (NET)	127	120-124	108-110
Entegris (ENTG)	129	124-127	114-116
KKR & Co. L.P. (KKR)	62	63.5-65.5	59.5-61
Lending Club (LC)	27	25.5-27	22.5-23.5
Lululemon Athletica (LULU)	420	407-420	370-375
Natera (NTRA)	120	115-119	105-107
Wingstop (WING)	182	173-177	159-161

Two companies with low price-to-book value ratios selling at bargain prices are discussed.

Dividend aristocrat Johnson & Johnson (JNJ) is finally rallying this week. Is this a great opportunity to buy a dividend aristocrat on the cheap?

How call options work is by giving the buyer the right, but not the obligation, to buy a stock at a predetermined price and time.

A maxim popular among asset managers is that it’s impossible to time the market. There’s more to it than that, and these numbers paint a more accurate picture.

Note: This is our final issue of Cabot Stock of the Week this year. Next week we get a little “vacation.”

But rest assured we’ll be keeping an eye on the market, where market trends remain very positive as we head toward the end of the year.



Today’s recommendation is a low-risk water company in a foreign country, so it may be the perfect diversification move if you’ve got a lot of U.S. growth stocks.



But to fit it into the portfolio, we’ve got to sell something, and the victim this week is Eli Lilly (LLY), which has brought us a decent profit in a fairly short time.



Full details in the issue.

The market continues its good news/bad news behavior, with emerging market stocks as a whole not doing well but Chinese stocks performing strongly. So, while we don’t have a formal Buy signal, we’re taking advantage of Chinese strength to inch a little deeper into the market. Today’s featured stock is another old friend that we’ve made money on before that has broken out of a nice consolidation pattern.

Today’s recommendation is a stock that you may never have heard of, and there are pros and cons to that. But it will certainly bring diversification to the portfolio, and I leave it to you to decide if the stock is right for your portfolio as well.

In choosing today’s stock, I deliberately looked for one that was not hitting new highs, a stock with limited downside. And what I found was a stock that came public recently—to great fanfare—but that has since cooled off and settled down to what I believe is a buyable bottom.

As expected, the Federal Reserve reported on the capital plans of 34 U.S. banks yesterday, following the annual stress test. Of the dozen banks that I reviewed, here are the best stocks to buy today:

Before I dive into my election preview, I first wanted to address Palantir (PLTR) earnings as the company will report its quarterly results today after the close.

Before I dive into my election preview, I first wanted to address Palantir (PLTR) earnings as the company will report its quarterly results today after the close.

Despite some wobbles early in January, the S&P 500 closed at a new all-time high on Thursday. And even though the indexes pulled back marginally on Friday, by week’s end the S&P 500 had gained 1.7%, the Dow had rallied 1.83% and the Nasdaq had added 1.53% (though the Nasdaq got hit again on Monday, led lower by AI stocks).

It seemed like the post-Fed action from two weeks ago may have paved the way for another leg up in the leadership. While that’s not off the table, we’re continuing to see a lot of crosscurrents out there as money sloshes around. What does it mean? Not much yet, as the major evidence remains positive.

It was Fed and jobs week in the market, which implied a lot of volatility—and that’s just what we’ve seen, with a big drop after the Fed said no cuts were likely in March, a nice rebound yesterday, and this morning is looking more mixed, as some big tech earnings are helping the Nasdaq but the rest of the market is suffering as a strong jobs report has rates spiking.

It’s been a relatively quiet week if you follow the major indexes, with the big-cap measures flat and some of the broader indexes down less than 1%. And that keeps the top-down evidence broadly neutral: Most indexes are trending sideways, with some (big-cap indexes, even a growth measure or two) near the top of their ranges while others are stuck in the mud. Meanwhile, things like Treasury rates, our Aggression Index and other factors remain on the intermediate-term fence.

The AI theme came under heavy pressure last Monday, which weighed on the markets. However, by week’s end the bulls had bought the dip and impressively the S&P 500 had fallen only marginally, the Dow had eked out a small gain, while the Nasdaq “only” lost 1.5%.