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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

When a company announces a secondary stock offering, it can be a huge buy signal. That was the case for these three small-cap stocks.

Four days ago, I returned from a fabulous 10-day vacation in Ireland and Northern Ireland with my wife.

Fed Chairman Ben Bernanke first raised the specter of “tapering” on May 22 of this year. Although investors knew the Fed had to end its program of quantitative easing eventually, hearing the truth from the chairman still had a significant effect on the market. Interest-rate sensitive investments reacted most dramatically. In...

The Emerging Markets Timer is still negative, although investors are edging back into the sector, moving the MSCI Emerging Markets Fund (EEM) higher over the past week. Our only portfolio move today is to buy a half position in Vale (VALE) bringing the portfolio to 40% invested.

The report features six attractive Canadian stocks you should buy right now.

Today’s main topic is a hot one and a big one ... the question of whether it might be a good idea to reduce the legal drinking age in the U.S. from 21 to 18. The background: a group of 129 presidents and chancellors from colleges and universities have signed the Amethyst Initiative, which states simply that the current legal limit of 21 is not working and asks for an open unbiased discussion of the issue.

Cabot Dividend Investor recommends a solid range of income-generating stocks with particular emphasis on risk, dividend safety and dividend growth.

Today, I will continue my chart series, by writing about using bursts of volume to identify areas of support.

As we move into the third quarter, analysts at Goldman Sachs write that their baseline forecast is for the S&P 500 to gain 5% in the second half of the year. In their “vaccine upside” scenario, stocks rise by 14% from here; in the “virus downside” scenario, they drop 30%.

The big news this week was, of course, the swearing in of President Biden and all the associated stories about the transition. Fun fact – portfolio holding Everbridge (EVBG) supplied its Mass Notification system to help keep Washington, D.C. area residents and visitors safe and tuned in during, and leading up to, the Presidential Inauguration.

The highlight of my week so far just might be waking up this morning and realizing I can count the remaining days in September just using my fingers. That’s not because the weather hasn’t mostly been beautiful in Rhode Island. It has. It’s because, as you know, the market has struggled this month.

The last two weeks have been a lot less fun than June and most of July. But big picture, a pullback is not remotely surprising.

Through yesterday’s close, both the large and small-cap indices were down about 2.6% from their recent highs. The Nasdaq was down almost 5%.

What is a little surprising is the rapid change of tone out there. This can be squarely blamed on Fitch’s downgrade of U.S. debt and Moody’s bearish notes on those 10 banks they think don’t look so hot.

Welcome to this week’s Cabot Macro Investor update.

I’m joking. We’re still all about small-cap stocks. But now that earnings season is over it’s all about the macro again. So we’ve got to address it.

In the second half of July, I felt like we were due for a pullback.

We may look to exit a few positions on strength over the coming weeks/months, but those moves will depend on share price momentum and/or earnings results. More companies have announced their earnings release dates, and three companies report next week. We have no ratings changes this week.

Another year is coming to an end. It was a crummy year for the market. The current roughly -20% YTD return for the S&P 500 with two days left marks the worst yearly performance for the market since 2008.


Although it’s been a tough year for stocks, history strongly suggests that 2023 should be a lot better. In the last 42 years, there have only been 7 calendar years of negative market returns and 35 years of positive returns. Of those 7 negative years, 5 were followed by years when the market rebounded at least 20%.

Explorer stocks gained or held their ground this week as the so-called “Mega-Cap 8” stocks dominate a narrow market for now.

China has become the 20% market – 20% of world GDP and 20% of multinational total revenue. This explains the steady stream of CEOs to China while Washington and Beijing top officials traded insults at a Singapore defense forum.

Dear Cabot Heritage staff, I am writing to thank you for writing such an excellent newsletter (Cabot Market Letter)! I usually don’t write letters like this. What prompted me to write though is the abundance of solicitations I get for other newsletters. The most recent solicitation (to buy small and midcap stocks) had a chart showing their performance versus the S&P and Russell 2000. In their review from 1999 to present they barely edged out those two indexes and in most cases barely beat or lost more than they did. For anyone who has received any of your solicitations that might be sitting on the fence or are reluctant to subscribe, you need to subscribe to the Cabot Market Letter! Your newsletter is by far the best I have ever read. Succinct and to the point with with your buys and sells. I look forward to getting your newsletter every two weeks via e-mail and enjoy the video updates you provide on Fridays. All the best and keep up the great work!
M. Pak, Knoxville, Tennessee

This strategy involves the selling of a call at a lower strike price, while simultaneously buying a call at a higher strike price. The maximum profit on this strategy is the premium you collect. The maximum loss is the difference between the strikes, minus the premium you collect.