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The American economy is in a period of great transition, but just like the frog in the pot of water that’s being slowly heated, many people don’t appreciate the magnitude of the coming changes yet. There are tremendous investment opportunities out there for investors who are willing to embrace the future. This week, General Motors (NYSE: GM) stock hit a 25-year low. In the same week, Clean Harbors (Nasdaq: CLHB), hit an all-time high.

It’s been a tough market for covered calls. Although the market has rallied off the low, call premiums are subdued because investors are less willing to bet on higher prices in the future with still high inflation, a hawkish Fed, and a looming recession.

Many of the more successful positions were called away at options expiration as they exceeded the strike price. But in hindsight it was beneficial to take those profits as well as generate a high income. Many of the remaining portfolio positions left are more cyclical stocks that have fallen below the purchase price. Several more defensive positions have since been added to the portfolio.

In an otherwise miserable year of nonstop inflation, recession, the Fed, and a bear market, an opportunity is emerging for opportunistic investors. Attractive rates on conservative fixed-rate investments have reemerged. There is a chance to lock in rates not seen since the decade before last.

In this issue, I highlight an investment grade rated fixed income security that currently yields nearly 6%, and the income offers tax advantages to boot.

The market continues to improve, with our Cabot Tides turning positive earlier this week. Now, not everything is rowing in the same direction, and among growth stocks, the pickings are relatively concentrated, so for now we’re stepping slowly into stocks and building positions rather than cannonballing into the pool—we added a chunk of money earlier this week, and tonight we’re adding one new half-sized stake in a volatile name we’ve been following for a while but has now changed character on the upside.

Elsewhere in tonight’s issue we review all our stocks, dive into many encouraging pieces of secondary evidence and one group that has a history of trending and is showing outsized institutional accumulation right now.

Remember the 3D printing stocks that were hot back in 2012 and 2013? 3D Systems (DDD) soared from 9 to 97, while Stratasys (SSYS) zoomed from 18 to 130. Some of the advance was certainly justified. Both companies had demonstrated their ability to grow earnings year after year, and in 2012 and 2013, both companies enjoyed many quarters when revenues boomed more than 50%. But look at the stocks today.

The market stinks right now, but MasterCard (MA) still looks good.

The market has been inundated with bad news lately, but so far, the indexes are holding up relatively well, and we’re pleased to see the selling pressures on the broad market ease. (Our Two-Second Indicator is positive again.) We continue to believe the next major move will be up.

Using numbers alone is a mistake in evaluating growth stocks, particularly exceptional growth stocks like Apple.

Good news! Last week, the S&P 500 broke out of a sideways trading pattern, where it had been resting since the late-August U.S. stock market correction. The S&P could easily rise to 2,120 this fall—a 5% move—barring unforeseen bad news.

It’s a new high! April was down. May was up. And June has been an up month so far. Hopefully, June will follow through and be another good month, but I’m still expecting a flatter market for a while.

The market goes back and forth with the interest rate narrative. But I don’t expect a resolution on that issue any time soon, or at least for the rest of the summer. Either the economy has to slow, or the Fed is going to at least leave rates where they are. But investors still insist on expecting rate cuts before the end of the year even though the economy looks strong.

We are entering the heart of earnings season. So far, the results are unimpressive. The entire retail sector is on alert after Walmart’s pre-announcement about weaker earnings due to their accelerating efforts to offload surplus inventory.

The internal condition of the market began to weaken in mid-March, as defensive-type stocks and sectors led the way higher, while everything else stagnated or worse. And last week we saw some real selling pressures emerging; it’s not the end of the world, but it’s certainly a change in character for a market that’s been chugging relentlessly higher since the start of the year. We’re moving our Market Monitor to neutral and will be watching carefully—it’s possible this will be just another brief shakeout, with earnings season rescuing the bulls. But, as always, it’s best to go with the evidence, and right now, that means raising some cash, limiting new buying and building a watch list for when the bulls re-take control.

On the plus side, we’ve been pleased with the solid growth stories we’ve seen in our screens the past few weeks, despite the market. Our favorite this week is Fifth & Pacific (FNP), a turnaround and special situation play in the retail sector that’s set to ride one super-powerful brand.

Stock Name	Price	Buy Range	Loss Limit
Zillow (Z)	76.64	50-52	44-46
ValueClick (VCLK)	0.00	27-29	25-26
Safeway (SWY)	0.00	24-25	22-22.5
Splunk (SPLK)	207.67	39.5-41	36.5-37
Sony Corp. (SNE)	0.00	16-17	15-15.5
SanDisk Corp. (SNDK)	0.00	53.5-55	50-51
Parexel Corp. (PRXL)	0.00	38-39	36-36.5
Keurig Green Mountain (GMCR)	0.00	53-55	46-47.5
Gilead Sciences (GILD)	75.10	45-47	41-42
Fifth & Pacific (FNP)	0.00	19.5-21	17.5-18

Current Market Outlook


In the big picture, we still have yet to see much abnormal action from the market—the long-term trend is up, the broad market is relatively healthy and, while many leading stocks have been dented, plenty are still acting well. Because of that, the odds still favor the next big move being up. But the short-term is trickier to game—it looks to us as if the market topped out for a few weeks starting in early September, with last Tuesday’s breakdown and last Friday’s rally rejection signs that big investors are liquidating some positions. With the major indexes just 2% to 3% off their highs, now is not a time to panic, but it is time to prudently manage your risk by cutting losses short, holding some cash and keeping new buys on the smaller side. We’re nudging our Market Monitor down to level 6 (out of 10) and believe the onus is on the bulls to reignite a new uptrend.

This week’s list has a wide variety of stocks and sectors to choose from. Our Top Pick is Paterson-UTI Energy (PTEN), which has been in rough shape during the energy bust, but the stock is now forecasting better times ahead.

Stock Name	Price	Buy Range	Loss Limit
Aerie Pharmaceuticals (AERI)	0.00	37-34	29.5-28
Diamondback Energy (FANG)	0.00	100-97	93-92
GoDaddy (GDDY)	0.00	35-34	32-31.5
ICU Medical (ICUI)	0.00	147-142	130-128
Las Vegas Sands Corp. (LVS)	0.00	58-56	50.5-49.5
Momo Inc. (MOMO)	44.65	24-22.5	21.5-20
Patterson-UTI Energy (PTEN)	0.00	24-22.5	21-20.5
PRA Health Sciences Inc. (PRAH)	96.08	54-52	49-48
RPC Inc. (RES)	0.00	18-17	16-15.5
TAL Education (XRS)	0.00	69.5-67.5	65-64

The market has shifted into a news-driven environment; today the indexes popped higher as it appears any strike on Syria will be delayed, or possibly abandoned. But with many economic reports coming up that could affect interest rates (including the jobs report on Friday) and with Congress debating Syria, expect more gyrations ahead. Overall, our outlook is the same as the past two weeks—with many growth stocks acting well, you should hold your top performers and look to do a little buying on weakness. But with the indexes chopping around, you should also hold some cash and wait for a real green light before getting too aggressive.

This week’s list includes a few secondary-type names; there aren’t as many liquid leaders as has been the case in past weeks. But there are plenty with big potential. Our favorite is Hain Celestial (HAIN), a direct play on the organic food movement, whose stock just emerged from a year-long rest.

Stock Name	Price	Buy Range	Loss Limit
Zillow (Z)	76.64	92-97	78-80
Web.com (WWWW)	0.00	27-28.5	25-25.5
Sina Corp. (SINA)	0.00	76-80	68-69
Nationstar Mortgage (NSM)	0.00	48-51	45-46
Laredo Petroleum (LPI)	0.00	24-25.5	22.5-23
Jazz Pharmaceuticals (JAZZ)	0.00	85-87	79-80
Incyte Corporation (INCY)	76.98	33-34.5	29-30
HD Supply Holdings, Inc. (HDS)	0.00	22-23.5	20.5-21
The Hain Celestial Group, Inc. (HAIN)	0.00	78-80.5	73-74
Chesapeake Energy Corporation (CHK)	0.00	25-26	23.5-24

The recent bounce in emerging market stocks has raised hopes that the end might be near for the powerful correction that has hit EM stocks so hard. That may be the case, although the only sure way to tell is to watch the market’s action tomorrow and through the rest of earnings season and beyond. We’re certainly not going to do any predicting, just telling you what to do based on the action we see. The next few weeks will see quarterly reports from four of our stocks, and will also give us a sense of what the future leadership among emerging-market stocks will look like. In today’s issue, we have a South African company that’s becoming a global player in a software niche.

The bulls made another, more impressive stand last week, and we do believe last week’s lows have a good shot at holding up for a few weeks. Best case scenario is that a bottom-building process is now underway, which will allow new leaders to build launching pads that will eventually result in much higher prices. But (you knew that was coming, right?) for now, the trend remains down, and while some groups and stocks are catching our eye, it’s best to give the bears real respect until proven otherwise. This week’s list is a mishmash of stocks, but one group that showed exceptional power off last week’s bottom was coal stocks. Consol Energy (CNX) is our favorite of the week – its stock is under tremendous accumulation, as coal prices spike due to tight supply and still-strong demand. Take a small position on any weakness.

Stock Name	Price	Buy Range	Loss Limit
CNX (CNX)	0.00	68-75	-
CPHD (CPHD)	0.00	27-30	-
ILMN (ILMN)	0.00	62-66	-
NLY (NLY)	0.00	18-20	-
RATE (RATE)	0.00	42-46	-
SID (SID)	0.00	78-86	-
URBN (URBN)	0.00	25 1/2 - 27 1/2	-
WLT (WLT)	0.00	38-42	-
AEM (AEM)	0.00	56-62	-
AUXL (AUXL)	0.00	30-33	-