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There are a few yellow flags out there, from short-term sentiment measures to a weakening broad market (our Two-Second Indicator is again unhealthy), but the trend of the major indexes is firmly up, and the action of growth stocks has been terrific, including a bunch that have surged on earnings in recent weeks.

The market hit a pothole today, which isn’t totally unexpected given the recent run-up; in fact, in the short-term, we don’t see much of an edge either way, as earnings season is underway and growth stocks have generally been lagging.

However, longer-term, the evidence remains piled up on the bullish side of the ledger, both via our trend-following indicators and with a growing number of bullish studies. Thus, we remain heavily invested, though we remain choosy on the buy side given the market’s short-term uncertainties.

Cabot’s intermediate-term market timing indicator has swung back to the positive side, lending a bit of ammunition to the bulls, but a look at the bigger picture reveals that the market remains in the sideways trading pattern that has defined it since the market’s initial selloff at the start of February.

In the April Issue of Cabot Early Opportunities we take heed of the market’s recent volatility by digging into a wider-than-normal range of emerging opportunities.

We have gold mining, AI website development tools, healthy fast-casual dining and a few things in between!

As always, there should be something for everybody.

This week, we comment on results from General Electric (GE), Mattel (MAT), Polaris (PII), Vodafone (VOD), Volkswagen AG (VWAGY), Western Union (WU) and Xerox Holdings (XRX).

Next week, twelve companies are scheduled to report.

We also include the Catalyst Report and a summary of the August edition of the Cabot Turnaround Letter, which was published on Wednesday. We encourage you to look through the Catalyst Report. This report is a listing of all of the companies that have reported a catalyst in the past month. These catalysts include new CEOs, activist activity, spin-offs and other possible game-changers. We source many of our feature recommendations from this list. You will find it nowhere else on Wall Street.

The charts and the fundamentals of leading growth are likely pointing toward a new sustained advance. With 22% cash, we’re building our Watch List and looking to put more money to work, ideally on dips or shakeouts.

The market roller coaster continued this past month, with inflation worries and rising interest rates leading the charge.

I believe this volatility will continue at least until the first quarter of next year. Consequently, I’m moving the portfolio in a more conservative direction at the moment.



Having said that, however, economic indicators continue to be positive. Motor vehicle sales are still strong, with 13.5 million units sold last month, better than expected. The ADP employment report also exceeded forecasts, with 208,000 new jobs coming online. And the unemployment rate fell to 3.5% from 3.7% the prior month.

The top-down evidence isn’t completely green, but it’s certainly taken steps in the right direction, with our Cabot Tides clearly on a buy signal, the broad market improving in the face of tons of bad news and sentiment still in the dumps. We think there’s a decent chance this rally can morph into the real deal.

That said, there’s no rush to jump in when it comes to growth stocks, as few are really moving on the upside–the sell-on-strength pattern remains in place, with far more air pockets out there than moonshots. That can change, and if it does, we’ll embark on a buying spree, but we still favor going slow on the buy side for now.

In tonight’s issue, we go over all our stocks and our recent moves, as well as dive into the sell-on-strength action, which to us, is the #1 market trait of 2022. When it ends, many will likely be caught leaning the wrong way (selling/shorting at new highs), but that’s what we’re waiting for to floor the accelerator.

The market advanced nicely today, continuing the bounce it’s enjoyed during the past week and a half. It’s encouraging action, and we’re not opposed to doing a little buying here or there given our large (76%) cash position.

That said, our trend-following indicators are still negative, telling us that, despite the nice rally, we need to see continued positive action before starting a major new buying spree. Right now, we’re mostly focused on fine-tuning our watch list, which we’re not having trouble doing given the many strong earnings gaps seen recently.

In tonight’s issue, we talk a bit about how markets usually bottom after a big decline, something that’s good to keep in the back of your mind. And we spend a lot of space discussing potential leaders of the next advance.

The market was in a normal, shake-the-tree correction for most of November, but the past two weeks have seen a massive wave of selling that’s cracked our Cabot Tides and scores of individual stocks. Yes, there’s a chance this could be a big news-driven shakeout (virus and Fed tapering worries, etc.), so we’re not sticking our head in the sand, but there’s no question the sellers are in control and many stocks are going to need a ton of repair work.

We’ve sold a bunch of names from the Model Portfolio in the past two weeks, and while we’re not opposed to adding a half position or two if the market finds its footing, we’re sitting tight with a large cash position tonight.

After a few weeks of solid action that eased most worries, the latest shenanigans in Iraq have reminded investors that the market is a two-way street. Not that the damage has been severe—stocks have generally eased normally since Iraq grabbed the headlines last Thursday—but we’re viewing this as the rally’s first test. If dips in the indexes and individual stocks come on generally tame volume and find support, it will be highly bullish. If not … well, we’ll deal with that if we see it. Right now, the evidence remains clearly bullish, and while the bulls aren’t running wild, many stocks are making solid progress.

This week’s list has a bunch of great stories, as well as a nice mix of newer and older names. Our Top Pick is Restoration Hardware (RH), which is going about business in a unique way, leading to outstanding results. The stock is getting going after a multi-month rest.

Stock Name	Price	Buy Range	Loss Limit
RH Inc. (RH)	252.93	79-84	72-73
VeriFone Systems, Inc. (PAY)	0.00	35-36	32-33
Netflix, Inc. (NFLX)	423.92	410-430	370-380
Health Net (HNT)	0.00	38.5-40	35-36
GT Advanced Technologies (GTAT)	0.00	18-19	15-16
Keurig Green Mountain (GMCR)	0.00	115-121	105-107
Eagle Materials Inc. (EXP)	0.00	90-94	84-85
Con-way (CNW)	0.00	46.5-48.5	43.5-44
Charter Communications (CHTR)	0.00	144-147	134-135
Baidu (BIDU)	0.00	170-175	158-160

Current Market Outlook


As each week has passed, we’ve seen more and more yellow and red flags, including divergences, an implosion in the broad market, and recently, some key leading groups (like chip stocks) and individual stocks break down. There are still some positives out there, especially that many growth stocks remain within multi-month consolidations; if the market pulls out of its funk, they could be the leaders of the next advance. But, right now, that’s a big if—with selling pressures intensifying, we’re knocking our Market Monitor down another notch. Holding cash and being very choosy when doing some buying is your best course.

This week’s list has a larger-cap flavor to it as investors hunker down in well-traded names. Our Top Pick is Nike (NKE), which recently staged a huge gap on earnings, something that almost always leads to good performance in institutionally-owned stocks.

Stock Name	Price	Buy Range	Loss Limit
Ulta Beauty (ULTA)	331.95	113-117	105-106
Nike (NKE)	89.77	86-89	82-83
Monster Beverage Corporation (MNST)	0.00	88-92	83.5-84.5
Mallinckrodt (MNK)	0.00	89-92	83-84
Home Depot (HD)	0.00	90-93	85-86
Keurig Green Mountain (GMCR)	0.00	128-132	119-121
FedEx (FDX)	0.00	156-161	150-151
Carter’s (CRI)	0.00	81-83	76-77
Acuity Brands (AYI)	0.00	128-132	120-121
Actavis (ACT)	0.00	238-243	222-224

There’s been a lot of bad news in the past couple of weeks, but nothing has changed with the market--it’s still trending down, and the broad market remains on the outs, and today, we started to see the first signs that even the many resilient stocks are coming under the gun. Big picture, we’re continuing to advise a cautious stance with much more cash than stocks and patience as we wait for the bulls to re-take control.


And we do think they can re-take control, possibly sooner than most think: There’s so much negativity and bearishness out there that any spark could ignite a big rally, if not a sustained uptrend. But as always, we have to see it first to act on it, so we’re continuing to stay close to shore--we’re selling one name tonight and placing the rest on Hold.


We spend most of tonight’s issue discussing the overwhelming negativity out there, which is setting the stage for the next advance, as well as diving into a handful of new names to watch, including one cheap cookie-cutter story that looks ready to go if the market can stabilize.

This week’s note includes our comments on earnings from 10 of our companies. The deluge continues next week.

The note also includes the monthly Catalyst Report and a summary of the November edition of the Cabot Turnaround Letter, which was published on Wednesday. We encourage you to look through the Catalyst Report. This report is a listing of all of the companies that have reported a catalyst in the past month. These catalysts include new CEOs, activist activity, spin-offs and other possible game-changers. We source many of our feature recommendations from this list. You will find it nowhere else on Wall Street.

Current Market Outlook


With all of the measures (both in real life, and in the financial markets) taken during the past month, one thing has remained the same: The trend of the major indexes and the vast majority of stocks has been down since late February, which has kept us cautious and holding lots of cash. And until that changes, your top priority is to remain defensive and patient as we wait for the buyers to show up for more than a couple of hours. That said, we’re always on the lookout for rays of light, and we are seeing one from the broad market, as fewer stocks are participating on the downside during the last week. That’s a plus, though we need to see it backed up by real buying and a break of at least some shorter-term moving averages (10-day, etc.) to think a workable low could be in. Right here, we remain cautious.

Encouragingly, though, this week’s list is fairly heavy on the growth side of the equation, including many stocks that found big-volume support on earnings last week. Our Top Pick is Chewy (CHWY), a defensive growth stock that’s executing well and has seen some major accumulation.

Stock Name	Price	Buy Range	Loss Limit
Adobe Inc. (ADBE)	315.23	295-305	265-270
Chewy (CHWY)	43.92	29-32	25-26
Cloudflare (NET)	39.32	19-21	16.5-17.5
Coupa Software (COUP)	262.20	124-132	107-111
Gilead Sciences (GILD)	75.10	69-72	63.5-65.5
JD.com (JD)	39.58	35.5-37.5	32-33.5
Moderna (MRNA)	29.39	25.5-28	21-22
Smartsheet (SMAR)	44.12	41-43.5	34-36
Vertex Pharmaceuticals (VRTX)	230.36	196-204	185-189
Zoom Communications (ZM)	155.83	130-145	110-118

Current Market Outlook


First and foremost, with the virus now affecting most everyone, all of us here at Cabot are hoping you stay safe (and if you’re home with your kids, sane!). As for the market, there’s not much to say except the obvious: We remain in a very steep selloff, with bounces limited to a couple of hours, though we’re seeing such crazy extremes (price and sentiment) that a near-term low is possible at any time. Our advice really hasn’t changed despite the once-in-a-lifetime action of the past couple of weeks: You should remain cautious, holding plenty of cash and keeping any new buying on the small side. Eventually, there will be huge opportunities, but we need to see the market and potential leading stocks find support before thinking a workable low could be in.

In the meantime, we’re mostly focused on eying stocks that are showing some resilience—if something can hold up in this disaster, it’s definitely worth at least keeping a close eye on. Our Top Pick is Masimo (MASI), which could be a port in the virus storm.

Stock Name	Price	Buy Range	Loss Limit
Acceleron Pharma (XLRN)	75.11	71-75	64-66
Apple (AAPL)	248.94	238-248	217-223
Bilibili (BILI)	28.71	23.5-25	21-21.5
DocuSign (DOCU)	107.98	70-74	63-65
Equinix, Inc. (EQIX)	547.73	538-550	505-510
FTI Consulting (FCN)	120.09	112-116	103-105
Inphi (IPHI)	120.16	62.5-66	56.5-58.5
Masimo (MASI)	159.56	172-177	157-160
Repligen (RGEN)	91.34	83-86	75-77
TAL Education (TAL)	50.49	47-50	42-43.5

Inflation’s bullish impact on precious metals prices has been held back by dollar strength. That could be changing.

In this week’s video, Tyler Laundon discusses the move in the 10-year Treasury and possible impacts on the market.

Current Market Outlook


The market had another decent week, with the major indexes finishing above key moving averages, though all are still stuck in multi-month ranges. But the calm action hid another round of vicious rotation beneath the surface, with most growth-oriented stocks at least taking on water, if not unraveling altogether. With few stocks in sustained uptrends and the major indexes effectively trending sideways, we continue to advise a mostly cautious stance, with small new positions and plenty of cash on the sideline. That said, you shouldn’t stick your head in the sand, either—we continue to see a good number of setups out there, and we believe a lot will come down to earnings season. A spate of breakouts would be encouraging, but as usual, we have to see it first.

This week’s list is mostly full of the steady growers and special situations that the market is favoring these days. Our Top Pick is Tempur Sealy (TPX), which looks like a solid turnaround situation, with surprisingly big growth numbers to boot.

Stock Name	Price	Buy Range	Loss Limit
Arconic (ARNC)	17.00	26-27	24-24.5
Cabot Microelectronics (CCMP)	156.17	143-148	129-131
Fastenal (FAST)	37.08	35-36	32-32.5
Kansas City Southern (KSU)	176.54	140-144	129-131
Nike (NKE)	89.77	92.5-94.5	85-86
Taiwan Semiconductor (TSM)	78.41	48-50	44-45
TAL Education (TAL)	50.49	38-39.5	34.5-36
Target (TGT)	124.77	109-112	100-102
Tempur Sealy (TPX)	85.53	79-82	71.5-73.5
TJX Co. (TJX)	59.24	58-60	53.5-54.5