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Fed Chairman Jerome Powell’s continued warnings of future rate hikes weighed on markets as did the Biden Administration’s suggestion that there should be new restrictions on selling advanced chips to China. Despite this, chip stocks such as Nvidia (NDVA) and the PHLX Semiconductor index were down by less than 1%.

Artificial intelligence (AI) calculations largely take place in data centers full of servers with graphics processing units (GPU)s from Nvidia and its competitors. It is estimated that 20% to 25% of the company’s revenue from Nvidia’s AI chips have been coming from China. To avoid further upsetting Beijing, no action is expected until after Treasury Secretary Janet Yellen’s visit to China in July. Washington is also preparing legislation to screen China-bound investments by U.S. companies. AI, quantum computing, biotechnology and large-capacity batteries are at the top of the list.

The overall evidence continues to lean bullish, but growth stocks are on a wild ride, first selling off in August/early September, then rallying for a few weeks before backing off again in recent days. We remain optimistic, but are still taking things on a stock-by-stock basis, pulling the plug on laggards while aiming to put money to work in potential new leaders. This week, we let go of Wingstop on Monday, leaving us with around one-quarter of the portfolio in cash.

In tonight’s issue, we write more about our thoughts on the market and our stocks, talk about one recent sell we wish we had back and dive into two secondary indicators we’re watching closely to tell us when the market (and growth stocks) will decisively break out.

Growth stocks have changed character over the past week, with abnormal action and breakdowns appearing. The good news is that a major top doesn’t appear to be in place; the general market is still hanging in there for now, and the long-term trend of most leaders is still up. But, taking things on a stock-by-stock basis, we’ve pared back a bunch and are actually holding more than half the portfolio in cash. That’s probably too high (we’d like to put some to work in fresher leaders), but we’re content to patiently wait for buyers to support the market.

In tonight’s issue, we review all our stocks, dive into the two main factors to your investment returns and go over many fresher names that could help lead the market’s next upmove.

The market remains in good shape, but growth stocks have come under pressure -- for the first time in months, we’re seeing a good amount of abnormal action. Longer-term, we’re still quite bullish, both on the market and on leading stocks, but given the action (and our solid gains this year), we’ve been paring back, with numerous partial profits and one outright sale, which has us holding a 37% cash position.

In tonight’s issue we write about all our latest thoughts on the market, and how to handle big winners that begin to act iffy. We also write up a handful of names we’re watching should growth stocks stabilize.

The market remains very strong, with the trends of the major indexes and the vast majority of stocks pointed up, both of which keeps us mostly bullish. But really, we’re looking at things mainly on a stock-by-stock basis now; some names are extremely extended and vulnerable to air pockets, while others are just a few weeks into what look like new, sustained advance. With that in mind, we’re actually taking partial profits on one stock today, while averaging up in another — all in all, we’ll still be around 18% in cash.

Elsewhere in tonight’s issue, we write about some of our favorite cookie-cutter stories out there at the moment; we own one great one, but we’d like to have another. And we also review all our stocks, present some new ideas and talk a bit how to handle the speculative, super-hot names in the proper fashion.

In recent weeks, we’ve seen outstanding moves among growth stocks (and, increasingly, the broad market), which coincided with increasing giddiness among many investors. That’s a yellow flag, and today, we saw the first signs of abnormal selling among the leaders—big-volume distribution was evident among many stocks, no matter what the sector. To be fair, few names truly broke down, so we’ll keep our Market Monitor where it’s been. But today was a shot across the bow; the next few days should tell us whether this is a shakeout (we’ve seen a few this year), or whether a deeper (and well-deserved) retreat is likely during October.

This week’s list has many names that are more recent winners, and those types of names held up far better than most extended stocks today. Our favorite of the week is Las Vegas Sands (LVS), a leader from 2009-2010 that has re-emerged after a two-year rest. Try to buy on dips.

Stock Name	Price	Buy Range	Loss Limit
Whirlpool (WHR)	0.00	144-147.5	138-139
Workday (WDAY)	194.88	75-78	68-70
Ulta Beauty (ULTA)	331.95	111-116	100-102
Safeway (SWY)	0.00	29-31	26-27
NQ Mobile (NQ)	0.00	21-23	18-19
Las Vegas Sands Corp. (LVS)	0.00	62-65	58-59
Incyte Corporation (INCY)	76.98	33.5-35	29-30
Finisar (FNSR)	0.00	22-24	20.5-21
Salesforce.com (CRM)	0.00	50-52	46-47
Boeing (BA)	432.22	114-117	107-107.5

It wasn’t surprising to see the market pick up some steam following the resolution to Washington’s latest deadline. But what has been surprising is the sheer strength seen from the broad market and leading stocks. They’re hot! And, as we had hoped, some new leadership is beginning to emerge during earnings season. Of course, investor sentiment is bubbly, earnings season is still ongoing and many stocks are extended, so some potholes are possible. But given the evidence, we’re shifting our Market Monitor back into bullish territory.

This week’s list has a bunch of names that had been taking a breather during the past two to four months, but have now come alive on big volume as the buyers return. Our favorite is Spirit Airlines (SAVE), one of the few airline stocks that has a true, sustainable growth story.

Stock Name	Price	Buy Range	Loss Limit
Tesla, Inc. (TSLA)	818.87	165-175	145-150
Seagate Technology (STX)	0.00	47-50	42.5-44
Stratasys (SSYS)	0.00	105-110	99-100
SunPower (SPWR)	12.26	32-34	26-27
SanDisk Corp. (SNDK)	0.00	67-69	61-62
Spirit Airlines (SAVE)	57.03	40-43	35-36
Google Inc. (GOOG)	0.00	980-1,000	862-882
Finisar (FNSR)	0.00	24.5-26	22-23
Bonanza Creek Energy (BCEI)	0.00	51-54	45-46
Athenahealth (ATHN)	0.00	130-138	116-118

This remains a split tape, with many defensive and some commodity stocks testing new-high ground, while most of the market is chopping around, and growth stocks are still lagging. That said, we have seen a few rays of light lately—the mid-cap indexes are back above their 50-day lines, many growth stocks have held support for many weeks, and we’re seeing a few more potential leaders emerge on earnings or other good news. We’re sticking with our neutral Market Monitor until we see more bullish action among a variety of stocks and sectors, but the next week or two will be interesting.

This week’s list is still relatively heavy on commodity names, but our Top Pick is a growth stock that just completed a game-changing acquisition. Avago Technologies (AVGO) has great projected earnings growth, but the company reports earnings on May 29 so keep new positions small.

Stock Name	Price	Buy Range	Loss Limit
Zillow (Z)	76.64	95-100	88-90
Nabors Industries (NBR)	0.00	25-26.5	23-24
Lazard (LAZ)	0.00	47-49	45-46
Diamondback Energy (FANG)	0.00	72-74	66-67
Extra Space Storage (EXR)	0.00	49-51	46-47
Constellium (CSTM)	0.00	29-31	27-27.5
Carrizo Oil & Gas (CRZO)	24.03	53.5-55.5	50-50.5
Broadcom Limited (AVGO)	266.26	66-69	61-62
Athlon Energy (ATHL)	0.00	39-41	36-37
AerCap (AER)	0.00	45.5-47.5	41.5-42

Current Market Outlook


Last night, the headlines blared that there was no deal among Middle Eastern countries to curtail oil production, which led to a big overnight move down in oil prices and threatened to take a chunk out of major stock markets. Today, though, the reaction was fine—stocks actually rose on the day while oil prices declined only modestly. It’s not just a good lesson (pay attention—not to the news—but the market’s reaction to the news!), but also a good sign that the general market can shrug off “bad news” and continue along its way. More important will be earnings season, which will pick up steam in the days ahead. Right now, we continue to lean bullish and will be watching earnings reactions closely—how stocks react to their reports will be very revealing.

This week’s list has a mix of old world stocks (housing, construction, precious metals) and growth-oriented stocks (retail, technology). Our Top Pick is Adobe Systems (ADBE), a big-cap growth stock that has a great story and looks poised to break out.

Stock Name	Price	Buy Range	Loss Limit
TAL Education (XRS)	0.00	52-54.5	49-50
Whirlpool (WHR)	0.00	180-183	166-167
Weibo (WB)	98.16	20.5-21.5	18-19
U.S. Concrete (USCR)	0.00	61-63	55-56
Steel Dynamics (STLD)	0.00	22-23	20-20.5
Universal Display (OLED)	187.54	58-61	53-54
KB Home (KBH)	36.05	13.5-14.5	12.5-13
Kate Spade & Company (KATE)	0.00	23-24.5	21-21.5
Agnico Eagle Mines (AEM)	79.05	38-39.5	35-36
Adobe Inc. (ADBE)	315.23	94-97	87.5-88

Current Market Outlook


Last week was the third straight down week for the major indexes. More importantly to us, all remain clearly below their 50-day moving average. That keeps the intermediate-term trend pointed down, which combined with some soggy action from key groups (oils and chip stocks look like death) is a good reason to remain relatively cautious. Of course, not all is bleak—the longer-term evidence is still positive, and most leading stocks are in decent shape (though many did take on water last week). Overall, then, the song remains the same: We advise holding most of your strong, profitable stocks, but also holding a good-sized chunk of cash and being very choosy on the buy side. The onus remains on the bulls to retake control—until then, step lightly.

This week’s list has another strong group of stocks; a nibble here or there is fine, or simply put your favorites on your watch list. Our Top Pick is Array Biopharma (ARRY), which emerged on big volume last week, and it helps that many biotech names are acting resiliently.

Stock Name	Price	Buy Range	Loss Limit
Array Biopharma (ARRY)	46.35	25-26.5	22.5-24
Ascendis Pharma (ASND)	119.09	123-128	112-115
Copart (CPRT)	74.80	69-71	63.5-64.5
GW Pharmaceuticals (GWPH)	174.52	177-183	162-166
Legg Mason Inc. (LM)	37.44	35-36	31.5-32.5
PulteGroup (PHM)	45.93	31-32	28.5-29.5
RingCentral (RNG)	238.73	116-120	106-108
Sea Limited (SE)	132.86	27.5-29.5	24.5-25.5
Viasat (VSAT)	81.22	90-92	83-84.5
Wix.com (WIX)	302.53	132-136	121-123

The marijuana sector’s charts have been weak overall since the sector’s March top.

Entrepreneurs, according to academics, are motivated by an overwhelming need for achievement and a strong urge to build. As Thomas Edison commented, while he and his team were working to develop an incandescent light bulb that lasted more than a few minutes, “I have not failed. I’ve just found 10,000 ways that won’t work.” Without entrepreneurs the world, would be far, far poorer today. Most entrepreneurs are less famous than the men in this issue. But they are no less valuable. One is my father, who launched Cabot Market Letter from his kitchen table back in 1970 and persevered until he could afford to leave his regular job a few years later.

Current Market Outlook


It was a relatively quiet, but bullish, pre-holiday week, with the major indexes acting well and many stocks resting nicely. That said, there was still rotation evident, with growth stocks finally easing a bit while money sloshed into some other areas, before that situation reversed today. Overall, not much has changed with our thoughts—we’re generally encouraged, and actually think further pullbacks in growth titles could provide some tempting entry points (the Nasdaq is pretty extended short term), though there remains plenty of tricky and narrow action (just over half of all stocks are even above their 50-day lines and there are lots of potholes on a daily basis), so picking your stocks and buy points is important. We’ll keep our Market Monitor at a level 7.

This week’s list has a nice collection of stocks from different sectors and themes that have all shown some good-volume accumulation of late. Our Top Pick is Carvana (CVNA), which is near the top of a six-month launching pad.

Stock Name	Price	Buy Range	Loss Limit
Asana Inc. (ASAN)	69	61-65	52-54
BioCryst Pharmaceuticals (BCRX)	16	15.6-16.4	13.4-13.8
Carvana (CVNA)	316	300-310	270-275
Diamondback Energy (FANG)	91	88-92	80-82
International Game Technology (IGT)	23	22.5-24	19.5-20.5
Ford Motor Co. (F)	15	14.2-14.7	12.6-12.9
Roku, Inc. (ROKU)	435	420-440	370-380
Snap Inc. (SNAP)	69	67.5-69.5	60-61
Tempur Sealy (TPX)	41	39.5-41	35.5-36.5
Urban Outfitters (URBN)	40	38.5-40	35-36

LinkedIn (LNKD), Tesla Motors (TSLA) and ZipCar (ZIP) are all recent IPOs.

The kind of list I want to talk about briefly is a watch list of stocks that you are interested in.

Use the stock market itself as the source for your investing tactics. It’s the only financial news that you can really use.

Overall, our thinking hasn’t changed from a week ago. The market’s various pieces of evidence almost all point to the bull side, and thus, we think a heavily invested position is advised.

Fall has always been my favorite season. I love the crisp, cool fall days that we get in the Northeast, especially when it’s sunny. I also love the sweaters, boots and scarves that are justified by the chill in the air. Fall always makes me want to go shopping. And I’m...

The market’s action continues to impress, with the S&P 500 hitting new all-time highs and other indexes and leading stocks racing higher. While there are no sure things in the market, the evidence is now strongly bullish—the odds greatly favor higher prices in the weeks and months ahead.

Cabot Market Letter Chief Analyst Michael Cintolo was featured in the September 25, 2014 Timer Digest cover story.