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U.S.-China turbulence led to a rollercoaster week for global stocks with some recovery during the past couple of days. Our Emerging Market Timer has turned negative, as EEM has fallen below both its 25-day and 50-day moving averages.

Several of our portfolio companies posted strong earnings this week and the portfolio is already in a conservative stance. We have a new recommendation today that will diversify the portfolio and give us exposure to a country with a youthful population and a robust economy.

Current Market Outlook


If you haven’t stuck with a proven system in 2015, chances are you’ve been chopped to pieces by the market’s never-ending ups and downs. Today was another headline-driven selloff (Chinese stocks are seeing renewed weakness), but it doesn’t change the market’s condition—the intermediate-term trend is still sideways, with some stocks acting fine and others looking like it’s 2008. The plan remains the same—be selective on the buy side, honor all stops and hold some cash, but also give your most resilient stocks a chance to hold up and resume their advances. If leading stocks decisively break down, then we’ll change our tune, but so far focusing on the strongest stocks has been fruitful.

This week’s list features a few recent earnings winners, as well as a few that are set up well heading into their earnings reports. Our Top Pick is Valeant Pharmaceuticals (VRX), a big-cap growth stock that remains in a firm uptrend following a better-than-expected report.

Stock Name	Price	Buy Range	Loss Limit
Valeant Pharmaceuticals (VRX)	0.00	248-256	230-232
Netflix, Inc. (NFLX)	423.92	101-106	93-94.5
Infinera (INFN)	0.00	22.5-23.5	20-21
IACI (IACI)	0.00	78.5-81	75-76
GoPro, Inc. (GPRO)	0.00	59-62	54-55
Criteo (CRTO)	0.00	51-53	48-49
Chipotle Mexican Grill (CMG)	773.32	705-720	660-665
Cempra (CEMP)	0.00	42-44	37-38
China Biologic Products (CBPO)	0.00	112-117	105-106
Amazon.com (AMZN)	2.00	515-530	470-475

Today, for a change, I’ll cover the news first, and the investing advice second. In Illinois, marijuana taxes exceeded alcohol taxes in the first three months of 2021. Marijuana tax revenue amounted to $86,537,000 while alcohol taxes brought in $72,281,000. I expect the gap to widen from here and there’s no question other states have taken note.

While our focus is on long-term business fundamentals and underlying valuations, even we can be tempted to briefly set this aside for shorter-term bargains. And this time of year these bargains can appear, driven by artificial selling pressure.

In this issue, we look at six stocks that are promising candidates for a bounce.

The market continues to look good as stocks are grinding higher with a few normal-looking down days mixed in (like yesterday) to keep investors honest. Average in, spread out your buys across different stocks, and take note of the current trading range and where support, and overhead resistance, appear to be. Action is starting to pick up in our portfolio, with a few companies having reported this week and a number on tap for next week too.

There remain a few hundred leading stocks that are in great shape – they’ve reacted well to earnings, are in powerful sectors and find buying support just a couple of weeks after beginning normal corrections. However, there are also plenty of stocks that are languishing, or have been taken out and shot during earnings season, leaving investors scratching their heads. The bottom line is that stock selection is very important in this environment, as the leaders are putting on outstanding displays … but there are still plenty of potholes. Thus, holding a little cash as earnings season continues isn’t a bad idea; this week’s Top Ten, for instance, contains a couple of big earnings winners that look ripe for buying. Our favorite of the week is Nasdaq Stock Market (NDAQ), a pure “Bull Market stock” that’s going to benefit from both the strong equity markets and consolidation in the industry. Look to buy on a pullback of a couple of points.

Stock Name	Price	Buy Range	Loss Limit
CNX (CNX)	0.00	54-58	-
CYBS (CYBS)	0.00	15 1/4 - 16	-
DECK (DECK)	0.00	125-135	-
DV (DV)	0.00	50-55	-
IBN (IBN)	0.00	60-64	-
NDAQ (NDAQ)	0.00	40-45	-
NUVA (NUVA)	0.00	37-42	-
SGR (SGR)	0.00	70-74	-
STLD (STLD)	0.00	49-53	-
STP (STP)	0.00	52-56	-

[Note: Due to the Christmas holiday, there will be no Cabot Turnaround Letter weekly update next Friday. The next monthly issue of the newsletter will be published on December 31.]

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