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Current Market Outlook


Beneath the market’s surface, there’s been lots of rotation and volatility, with buyers focusing on the laggards of late last year (especially the big-cap growth stocks), while the strong materials and transportation sectors continue to consolidate. (Even as the major indexes probe new high ground, the number of stocks hitting new highs is way down versus a few weeks ago.) That’s something to keep an eye on, but the trends of the major indexes and most stocks are still up, sellers have been unable to put much of a dent in the market despite the huge post-election run and few stocks have broken down. Until that changes, we’re keeping our Market Monitor in bullish territory, though it’s probably best to be a bit more discerning on the buy side, looking for tight setups and big volume breakouts.

Tonight’s list remains heavy on turnaround stocks, especially those in cyclical industries; the odds continue to favor higher prices as these stocks consolidate their strong post-election gains. Our Top Pick is AK Steel (AKS)—you can buy a little here and look to add shares on a powerful move to new highs.

Stock Name	Price	Buy Range	Loss Limit
AK Steel Holding (AKS)	0.00	9.9-10.4	9.0-9.3
Atwood Oceanics (ATW)	0.00	12.5-13.5	11-11.5
CF Industries (CF)	45.23	32-33	29-30
Clovis Oncology (CLVS)	0.00	45-48	41-43
Grand Canyon Education (LOPE)	121.03	57-59	54-55
Greenbrier (GBX)	57.73	44.5-47	40.5-42
Lions Gate Entertainment (LGF-A)	0.00	25-27	23-24
Oil States International (OIS)	0.00	39-41	36-37
Shopify (SHOP)	585.00	45-47	42-43
SVB Financial Group (SIVB)	0.00	170-175	157-160

Current Market Outlook


The market has made a little upside push during the past week or two, but net-net, most indexes are up just a smidgen during the past seven weeks. That sideways trading has contained most stocks and sectors, too, as they chop around with a slight upward bias. Even so, the intermediate- and longer-term trends are up, so the odds continue to favor the next major move being up. And we’re encouraged by both the number of positive earnings reactions we’ve seen, as well as the action of those stocks after they gap up—most have traded constructively post-earnings with no selling pressures coming in even after they ramp. All told, we’re still mostly positive, but we’ll keep our Market Monitor at a level 7 (out of 10) until we see more than just the Nasdaq decisively push out of their recent trading ranges.

This week’s list has another batch of strong stocks, including many that have recently reacted well to earnings. Our Top Pick is a tough call, but we’ll go with Ally Financial (ALLY), which just exploded higher on earnings after years in the market’s doghouse. It looks to be just starting its run.

Stock Name	Price	Buy Range	Loss Limit
Ally Financial (ALLY)	30.44	21.5-23	20-21
Century Aluminum Co. (CENX)	17.24	14-15	12.5-13
Essent Group (ESNT)	0.00	34-36	31.5-32.5
Exelixis (EXEL)	27.35	18.5-19.5	17-17.5
Olin Corp. (OLN)	0.00	28.5-30	26-27
Symantec Corporation (SYMC)	0.00	26.5-28	25-25.5
Teradyne (TER)	82.83	27-28.5	25-26
Tesla, Inc. (TSLA)	818.87	247-256	225-229
Texas Capital Bancshares (TCBI)	0.00	82-86	76-78
Yandex (YNDX)	0.00	22-23	20-21

The big news today is that last week’s market weakness turned our intermediate-term market-timing indicator negative. But no one indicator is perfect, and at Cabot, we use another indicator to measure the market’s long-term trend—and that indicator is still positive. Thus it’s a standoff, which means our Market Monitor is positioned at dead neutral. Short-term, we tend to think the market is ripe for more of a pullback, simply because it’s had such a great, long advance. But long-term, we remain optimistic that once the correction is complete, the main uptrend can continue, and this thinking, in part, is because there are so few investment alternatives! In any event, our goal is to continue presenting you with stock that are most prone to short-term strength, and this issue brings a nice mix of old and new. Read them all, choose your favorite story, and work to find a good entry point. Our favorite this week is Twitter (TWTR), which has a huge fundamental story and a decent technical setup.

Stock Name	Price	Buy Range	Loss Limit
Valeant Pharmaceuticals (VRX)	0.00	125-131	123-124
VeriSign (VRSN)	190.71	58.5-60.5	56-57
Vipshop Holdings (VIPS)	14.25	91-95	80-82
Twitter (TWTR)	40.37	56-62	52-53
Insulet (PODD)	175.69	41-43	39-40
Pandora Media Inc. (P)	0.00	31-33	29-29.5
Medivation (MDVN)	0.00	70-75	69-70
The Hain Celestial Group, Inc. (HAIN)	0.00	91-93	83-85
Gilead Sciences (GILD)	75.10	76-79	73-74
CalAmp (CAMP)	0.00	27-29	24-25

Current Market Outlook


With the market beginning a long-overdue correction that has the potential to bring high-flying stocks down to earth, one very human temptation is to defer new buying until risk seems to be past. But if you always think that way, you’ll never invest. Instead, we recommend keeping it simple. Recognize that the market’s main trend today is clearly up, and focus on identifying strong stocks with logical entry points. The candidates for today’s Top Ten included many semiconductor stocks, medical technology stocks, basic chemical stocks, financial services stocks and REITs, and you’ll find the best of those, along with other attractive stocks.

Our Top Pick is NetEase (NTES), which gapped up to new highs on its earnings report in mid-February and has since pulled back to support at the low end of its recent range. (Note: Don’t let the high share price dissuade you; simply buy fewer shares.)

Stock Name	Price	Buy Range	Loss Limit
Bluebird Bio (BLUE)	0.00	80-85	73-74.5
Century Aluminum Co. (CENX)	17.24	13.5-15	12-12.5
Conduent (CNDT)	0.00	15-16	13.5-14
Copa Holdings (CPA)	0.00	101-105	96-97
NetEase, Inc. (NTES)	0.00	280-290	260-265
Pacira Biosiences (PCRX)	54.85	48-51	44-45
STMicroelectronics (STM)	30.09	13.5-14.5	12.5-13
Symantec Corporation (SYMC)	0.00	27-29	25-26
TAL Education (TAL)	50.49	85-91	80-81
United Rentals, Inc. (URI)	0.00	125-130	114-115

Current Market Outlook


The overall market continues to act just fine, the trends are pointed up for most indexes and stocks, and the broad market remains in great shape. That said, it’s not all peaches and cream—the last three days have seen some selling pressure in a few highflyers and money flows into defensive groups (like utilities and consumer staples). Moreover, this action comes after a few short-term signs of enthusiasm, including a huge number of new highs on Nasdaq last Wednesday. Don’t get us wrong: We’re still bullish, and you should hold your strong stocks and be heavily invested. But we’ll knock our Market Monitor back down a notch (to a level 8), and think being selective on the buy side and ditching losers and laggards makes sense.

This week’s list has a broader array of stocks than in recent weeks as money flows shift. Our Top Pick is Square (SQ), which looks like a new leading growth stock after galloping ahead on earnings last week. Keep positions small and try to get in on dips.

Stock Name	Price	Buy Range	Loss Limit
Applied Optoelectronics (AAOI)	0.00	43.5-47	38-40
Autohome (ATHM)	98.65	32-34	30.5-29.5
HubSpot (HUBS)	582.89	57.5-60.5	55-53
Marriott Vacations (VAC)	0.00	93.5-97.5	87-89
Sage Therapeutics (SAGE)	0.00	62-66	56-59
Sinclair Broadcasting (SBGI)	54.14	38-40	35-36
Southwest Airlines (LUV)	0.00	55-57	51-52.5
Square, Inc. (SQ)	91.04	17-18	15.2-15.6
Univar (UNVR)	0.00	30.5-32	28-29
Universal Display (OLED)	187.54	82-85	74-76

Talk about a terrible week for cannabis investors. The Drug Enforcement Agency (DEA), on Monday, torpedoed the sector by announcing a move that will significantly delay favorable legal reform.

What happened: The DEA now wants to hold a formal hearing on the Biden administration’s proposal to reschedule cannabis, before deciding what to do. The move dashed all hopes of rescheduling before the election – which many analysts had expected – since the hearing is set for December 2.

The cannabis sector has a dream ticket with Kamala Harris and Tim Walz. Investors act like they haven’t even noticed. This seems like a big mistake.

The key takeaway: Cannabis stocks look buyable in the current bout of dramatic sector weakness. Cannabis investors are notoriously bipolar. Right now, they are in a dark mood. That’s usually been the best time to add to positions, especially when there are potential catalysts on the horizon like now. In today’s update, I outline the main ones and the possible timing.

In our August 24 note, we commented that the current stock market felt like the scene in the 2000 movie “The Perfect Storm” in which the fishing boat Andrea Gail, after an intense battle with the storm, finds herself in calmer waters lit by rays of sunshine.

Central banks around the world are boosting interest rates at a pace faster than perhaps any other time in living memory. Since mid-March, only six months ago, the U.S. Fed Funds rate has surged from essentially zero to about 2.35% and will be at 3.0% by the end of this week.

With the broad market making new highs in the face of renewed tariff threats, it seems investors are willing to shrug off macro concerns, at least for now.

We’ll heed the bullish action by stepping into three new positions this month, but hedge our bets by making one of them a half-sized position. We also add two new names to our Watch List.

Markets, led by Nasdaq’s leading companies, had an impressive winning streak broken by concerns over an acceleration of coronavirus cases. Our Emerging Markets signal (EEM) stays positive as the virus is being handled well in Asia outside of China but is exploding in Latin America. The Explorer portfolio is well positioned with cash to deploy and stocks holding up well.

Today, we’ll look inside the indexes to see what’s working and also explore what more participation by individual investors in 2020 might mean for markets. Then we move north to Canada for a promising new recommendation that has all the characteristics of a winning gold stock.

Today’s recommendation is a fast-growing mass market stock that has the leading market share in the online food ordering business. The stock has been trading sideways for five weeks and I think it’s ready for a breakout.

Markets sold off slightly on Wednesday, but really got into it on Thursday, with the iShares MSCI ETF falling a full 2%. Despite the blood-letting, the Cabot Emerging Markets Timer is still flashing a green light, indicating that the medium-term trend of the market is still up.

The general trend in emerging market stocks has gone from bad to worse, and we have responded by moving heavily into cash. And although this isn’t as much fun as picking out the big winners from among a stampeding herd of strong stocks, it’s the price we have to pay to play profitably in a volatile market. Today we’re featuring a relatively conservative stock that sports strong fundamentals and a tidy dividend.