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The big-picture market outlook remains very bullish in our view, but there’s no question we’re seeing more potholes, with more stocks and sectors chopping sideways in recent weeks—and then, last week, we saw sellers step up. Of course, today’s bounce was encouraging, but the odds of a volatile rest period are growing given the prior extended run. Right here, we’ll leave our Market Monitor at a level 7, though we’re mostly taking things on a stock-by-stock basis.

The best news from the last week came from earnings season, where there were a large number of positive earnings reactions among names with solid stories and numbers. Our Top Pick is a well-run company, and now growth is strong as AI demand ramps.

Current Market Outlook


We could pretty much cut our intro from the past couple of weeks and paste it in this week—the primary evidence (trends and overall action of the market and leading stocks, fresh breakouts, blastoff-type green lights from mid November) remains very encouraging, with most of the major potholes seen lately coming from very speculative situations. The main worry is that few investors are worried (in stark contrast to earlier this year, when the market was kiting higher but few believed it), which tells us that risk is rising. Thus, we remain bullish and think putting money to work is the best course of action, but it’s also important to keep your feet on the ground and focus on the best-looking stocks while trailing stops higher and taking partial profits as things stretch higher.

This week’s list is relatively split between growth situations and those benefiting from cyclical/turnaround buying. Our Top Pick is Axon Enterprise (AAXN), which continues to gain sponsorship and has just tightened up nicely for five weeks.

Stock Name	Price	Buy Range	Loss Limit
Adient (ADNT)	34.99	32.5-34.5	28.5-30
Align Technology (ALGN)	504.11	485-515	430-445
Ambarella (AMBA)	90.94	84-88	74-76
AAXN (AAXN)	127.31	124-129	111-114
Baker Hughes Company (BKR)	21.72	20.8-21.8	18-18.7
fuboTV Inc. (FUBO)	27.15	24.5-26.5	20.5-21.5
The Michaels Companies (MIK)	11.68	10.9-11.8	9.4-9.8
Micron Technology, Inc. (MU)	71.54	66-69	60-62
PagerDuty (PD)	44.18	41.5-43.5	36.5-37.5
Stitch Fix (SFIX)	64.06	57-61	48-50

I know that these trading fiascos are bad things ... and yet part of me is strangely pleased about them. I like having big object lessons that show what happens when people break the rules and refuse to cut their losses short. Rogue traders aren’t greedy criminals - none of the big ones have made any money for themselves on their dealings. But their mistakes remind us that anyone who reacts to losses by making increasingly riskier trades can parlay bad luck into a financial catastrophe of amazing proportions.

The S&P 500 crossed above its 25-day moving average line on April 6 and is back above its 50-day moving average line today. It is only 16% off its previous high. Granted, under the circumstances that doesn’t seem quite right. But nevertheless, there it is.

Our portfolio has soared over the past week right along with the market. Our average gain is 3.2%, and our stocks are beating their benchmark by around 20%.

Last week’s pullback in the major indexes was pretty disappointing, but when we took a look around at all the evidence this weekend nothing much had changed on an intermediate-term basis: Most leading stocks are acting fine, the trends are still pointed up for the major indexes and, while it’s been a bit more rotational of late, there are still plenty of fresher titles that are advancing. We’ll be watching everything going forward (including the still-steep uptrend in Treasury rates), but at this point, we remain optimistic. We’ll leave our Market Monitor at a level 8.

This week’s list is chock-full of growth-y names, many of them familiar ones. Our Top Pick is a big, liquid, well-sponsored e-commerce emerging blue chip that just catapulted out of a big base.

The post-Labor Day selling was worrisome, suggesting the correction that began in mid-July (for the big-cap indexes) or March (for the broad market) was still ongoing. And, frankly, we continue to think that—from a top-down perspective, the market is still mostly working through a consolidation, and safer measures are outperforming (a sign big investors are hesitant). That said, there’s no doubt the action among individual stocks remains mostly encouraging: Last week saw tons of beefy action, with many roaring right back to (or out to) new high ground as soon as the pressure came off the indexes. We’re going to nudge our Market Monitor up a level 7, though our general advice (small new positions, hold some cash) still holds.

This week’s list again has many familiar names from a range of sectors, a sign that the underlying resilience is persisting and broadening a bit. Our Top Pick has a great-looking launching pad—as with many names, it hasn’t broken out yet, so either start small here and use a loose leash and/or aim to buy on a decisive breakout.

One of my favorite stocks is in the technology industry, where we often find great growth stories in bull markets. Its name is Rackspace Hosting (RAX), and its business is simple; it delivers enterprise-level hosting services to businesses of all sizes all around the world. The company first came to my attention when our IT director selected it as the site for our Cabot server about two years ago, a choice that has proven wise. Rackspace differentiates itself from the competition--in an industry that risks commoditization--by promising “Fanatical Support” to its customers ... and delivering.

Lou Gagliardi, editor of Cabot Global Energy Investor, is interviewed about where he sees the energy industry headed.

FANG stocks - Facebook, Amazon, Netflix, Google - have been stuck in the mud for five months. It’s no coincidence that the market hasn’t budged either.

Want to buy Netflix (NFLX) or Amazon (AMZN) or other stocks at a discount after an earnings miss? Adhere to the Three-Day Rule.

In selecting today’s stock, I looked for a quality stock with a strong and healthy technical pattern that was presenting a decent buy point. Oddly, it’s a bricks-and-mortar retailer, a category with an abundance of losers these days. But it’s a winner, and I think you’ll like it.

Current Market Outlook


The big-cap indexes started strong today on news of a new NAFTA deal, but under the surface, we’re seeing continued rotation and signs of degradation. Small- and mid-cap indexes took hits today and remain below their 50-day lines, while most growth stocks continue to act iffy. To be fair, the start of a new quarter often sees many crosscurrents, and most leading stocks, while choppy, remain in uptrends. But we’ve now seen funky action and lots of rotation for over a month, which has our antennae up. We’re moving our Market Monitor to a level 6 and feel the next few days will be telling—if leaders are OK, we expect to see support show up, but if not, the odds of a longer pullback will increase.

As for our screens, we’re still finding a good number of good charts, albeit in a variety of sectors. Our Top Pick today is Allegheny Technologies (ATI), a specialty metals firm that is showing signs of getting going after months of base-building.

Stock Name	Price	Buy Range	Loss Limit
Alarm.com (ALRM)	71.33	55.5-57	51-52
Allegheny Technologies (ATI)	27.78	28.5-30	26-27
Ecopetrol (EC)	22.17	25.5-27	22.5-23.5
Intelsat (I)	25.46	27-29	24-25
Paycom Software (PAYC)	0.00	145-150	136-139
PetIQ (PETQ)	30.82	36-38	33-34
Teladoc, Inc. (TDOC)	127.95	79-83	70-73
Vale S.A. (VALE)	15.40	14.5-15	13.2-13.6
WPX Energy (WPX)	0.00	19.3-20.2	17.4-17.9
Zendesk (ZEN)	82.19	67-70	61.5-63.5

Current Market Outlook


After trading in a tight range for nearly two months, the major indexes were clobbered last Friday; most fell below their 50-day lines and a couple hit their lowest levels since Brexit. The action should certainly be respected—we’re knocking our Market Monitor down a couple of notches—but it’s important to look at all the evidence. While the intermediate-term trends are mostly sideways at this point, the longer-term trend is still up, the broad market isn’t falling apart as it would at major tops, and many individual stocks are pulling back normally so far. Overall, you should take things on a stock-by-stock basis, selling stocks that crack but giving others a chance to hold support and resume their advance. Overall, we remain optimistic, but picking your spots is important, and the next few days should be telling.



This week’s list includes many resilient stocks from a variety of sectors, which is a positive sign. Our Top Pick is Las Vegas Sands (LVS), a big-cap turnaround stock that has just lifted off following a huge bottoming effort.

Stock Name	Price	Buy Range	Loss Limit
Urban Outfitters (URBN)	0.00	35-36.5	32-33
Twilio (TWLO)	183.39	54-57	47.5-49
Tempur Sealy (TPX)	85.53	78-80	70-71
PDC Energy (PDCE)	0.00	64-66	59-60
MercadoLibre, Inc. (MELI)	980.83	174-178	160-161
Las Vegas Sands Corp. (LVS)	0.00	55-57	50-51
GrubHub (GRUB)	140.03	38.5-40.5	35-36
Callon Petroleum (CPE)	0.00	14-15	12.5-13
Burlington Stores (BURL)	193.95	80-82.5	74-75
Alibaba (BABA)	254.81	95-100	89-90

The market has hit a little turbulence as we wade into the early innings of the Q3 earnings season. But despite the bumps, there are more than enough stocks acting well enough to fill the pages of the October Issue.

This month, I continue to spread things around, exploring new ideas from the Fintech, software and coal (yes, coal!) industries while plucking two steady performers from our Watch List to add to the portfolio.

Enjoy!

In the February Issue of Cabot Early Opportunities we take a quick look at the big-picture events influencing the current market then dive into five names that keep jumping onto my radar.
This month we take another spin with two names that served us well in 2021 and add a software company that has the potential to be a massive player in the digital economy. We also take half a stake in a watch list name and refresh that list with an exciting IoT company.


Enjoy!

In the October Issue of Cabot Early Opportunities, we go deeper down the software rabbit hole, jump into a new grocery chain stock I suspect you’ve never heard of, dabble with a hot AI semiconductor stock and consider the potential of an EV stock that’s exploded on news of a big DOE loan.

As always, there should be something for everyone!