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Current Market Outlook


The selling pressure that appeared two weeks ago carried through to last week, with many leading stocks breaking down and others falling back into consolidations. That said, it’s not the end of the world—many major indexes are now testing their 50-day lines, and a bunch of stocks are in the same boat. There’s no question that the evidence has worsened lately, which is why our Market Monitor is back down to a reading of 6 (out of 10), but we’re most interested in what happens from here, which will probably go a long way toward determining the market’s next intermediate-term move. All told, you should still hold your strong, profitable stocks, but we also think it’s best to cool your heels a bit, keeping new buys small and holding some cash as we wait to see the market show its hand.

In the meantime, we’re using this brief period of market weakness to identify the stocks unaffected by the selling, as those will likely do the best when the market resumes its major advance. This week’s list has plenty to choose from, and our Top Pick is Wayfair (W), which is unusually strong—keep positions small and try to buy on dips.

Stock Name	Price	Buy Range	Loss Limit
Five Below (FIVE)	134.58	93-97	83-85
Ligand Pharmaceuticals (LGND)	267.14	202-211	185-188
Netflix, Inc. (NFLX)	423.92	385-400	345-355
Oasis Petroleum (OAS)	12.57	12.1-12.9	11-11.3
Supernus Pharmaceuticals (SUPN)	52.50	54-57	49-51
Teladoc, Inc. (TDOC)	127.95	56-60	49-51
Ultragenyx Pharmaceutical Inc. (RARE)	87.63	74-78	66-68
Wayfair (W)	167.03	112-117	100-104
WellCare Health Plans, Inc. (WCG)	271.83	238-245	220-225
WPX Energy (WPX)	0.00	17.4-18.5	16-16.7

The market’s evidence remains mostly bullish, so we do, too, but it’s a selective advance—most indexes are doing just OK, but growth-oriented stocks and sectors have put on a great show. In the near-term, there are signs of exuberance, and while that doesn’t mean you should sell your strong stocks, it is a sign to keep your feet on the ground.

In the Model Portfolio, most of our stocks are performing well, but we’re standing pat for the moment, holding about 20% in cash as we look for solid entry points in fresh leading stocks.

In tonight’s issue, we review the market, all of our stocks and even write about one growth sector that’s showing extreme power of late—we already own two of the leaders in the group, but many look great. We also touch on the sentiment backdrop, while highlighting a few potential new buys if things settle down a bit.

Current Market Outlook


May and June were generally great for leading stocks, but some yellow flags began to appear during the past couple of weeks—the major indexes were showing widening divergences, sentiment reached giddy levels and some stocks (like many recent IPOs) went vertical. Some sort of retreat was likely, but the severity of the selling in recent days looks abnormal; many stocks are pulling back after big runs, but a bunch of others are cracking, and the lagging indexes look sick—the NYSE Composite is below its 200-day line! We don’t advise hitting the panic button, as most indexes and stocks are still above intermediate-term support, so you can hold your strong, profitable stocks. But given the evidence, it’s smart to pare back—honor your stops and loss limits, and on the buy side, keep new positions small until support appears.

This week’s list has stocks that have been yanked down recently, but the action looks normal after strong prior advances. Our Top Pick is Carvana (CVNA), which is early stage and holding up well after a big run. Again, keep new positions small and try to buy on dips.

Stock Name	Price	Buy Range	Loss Limit
Carvana (CVNA)	82.90	36-39	32-34
Cheniere Energy (LNG)	63.82	64-67	59.5-61.5
Darden Restaurants (DRI)	106.63	104-107	96-98
Heron Therapeutics (HRTX)	35.25	38-40	33-34.5
Illumina Inc. (ILMN)	289.74	271-276	255-258
Spotify (SPOT)	272.82	166-171	154-157
Stitch Fix (SFIX)	36.79	26-27.5	23-24
Trade Desk (TTD)	468.02	86-90	78-81
Turtle Beach (HEAR)	26.70	19.5-21.5	15.5-17
Wix.com (WIX)	302.53	96-99	87-89

With the MSCI Emerging Markets Index headed steeply down since June 13, we have been moving quickly to cut our exposure and kick losers out of our portfolio. It’s not pleasant, but it’s the only way to stay profitable in a volatile sector like emerging market stocks. Today’s bounce in the markets was a welcome relief from the selling pressure, but we will discount the good news until the Cabot Emerging Markets Timer gives us the all-clear.

When the market picture gets confusing, as it often does, it pays to have some reliable indicators to depend on—rather than the guy on the evening news. So today, after a couple of weeks of market correction that have done serious damage to some leading stocks and led many pundits to ask whether we’ve seen the market top, we turn to our indicators and ask whether the bull market is truly over, and here’s what they say...

Current Market Outlook


The major indexes and (to a greater extent) leading stocks hit a pothole late last week, but while we see smatterings of abnormal action here and there, the vast majority of stocks are simply undergoing normal rests after what’s been a solid five weeks. Of course, this week has plenty of events on the schedule, including the Singapore Summit Tuesday and the Fed’s likely interest rate hike (and accompanying statement) on Wednesday, both of which could result in some news-driven moves. But we’re just going with the evidence today; the trends of the market and most stocks are up, so we advise sticking with a bullish stance.

As for this week’s list, it’s interesting in that we see a handful of turnaround-type plays that were left for dead until a few weeks ago. A good example is our Top Pick this week: Twitter (TWTR), which just emerged from its first proper launching pad since coming public.

Stock Name	Price	Buy Range	Loss Limit
Advanced Micro Devices (AMD)	82.24	14.2-15.5	12.5-13.2
Coupa Software (COUP)	262.20	57-60	51-53
G-III Apparel (GIII)	45.25	45.5-48.5	41.5-43.5
Kohl’s (KSS)	70.62	74-77.5	67-69.5
Momo Inc. (MOMO)	44.65	49-52	43-45
MongoDB (MDB)	156.56	49-52	43.5-46
Peabody Energy Corporation (BTU)	43.32	44.5-46	40.5-41.5
PTC Therapeutics (PTCT)	0.00	35-37.5	31-32.5
Twitter (TWTR)	40.37	39-41	35.5-36.5
Williams-Sonoma (WSM)	64.96	59-61.5	54.5-56

Current Market Outlook


While the action of most major indexes wasn’t overwhelmingly positive last week (the S&P 500 was up about 0.5%), there was a bunch of constructive action—the major indexes shook off three big worries (Italian and Spanish political uncertainties and new tariff threats) and some pushed above near-term resistance, with growth-oriented stocks leading the way. There are still many potential potholes out there, including divergences (and overhead) in the major indexes and investor sentiment that’s a bit complacent. However, the primary evidence (trends of the indexes and price/volume action of leading stocks) continues to improve. We’re bumping our Market Monitor up a couple of notches into bullish territory and, while you shouldn’t force it, you can look to take a more positive stance going forward.

This week’s list has a ton of growth-y stories, and even those that have more sturdy stories have recently staged excellent breakouts. Our Top Pick is GDS Holdings (GDS), a smaller Chinese firm with an excellent story. The recent pullback looks like a decent entry point.

Stock Name	Price	Buy Range	Loss Limit
Alibaba (BABA)	254.81	202-210	188-192
Align Technology (ALGN)	316.20	324-334	295-300
Canada Goose Holdings (GOOS)	46.21	40-42	36.5-38
Cheniere Energy (LNG)	63.82	63-66	58-59.5
Chipotle Mexican Grill (CMG)	773.32	430-445	410-416
GDS Holdings Limited (GDS)	80.15	36.5-39.5	32-34
Keysight Technologies, Inc. (KEYS)	97.20	58-60	54-55
Loxo Oncology (LOXO)	186.59	178-186	155-159
Novocure (NVCR)	0.00	28-30	25.5-26.5
Tiffany & Co. (TIF)	132.10	127-131	116-119

While we have yet to get a buy signal from the Cabot Emerging Markets Timer, our stocks are generally performing very well and we have only a couple of quarterly reports yet to come. In today’s issue, I talk about the trouble with too much news and write up a Chinese financial company that has a powerful head of steam up, with only a Q1 report to worry about.

The intermediate-term trend in emerging market stocks remains down, and we continue to advise a substantial degree of caution. At the same time, the fact that the indexes (both emerging markets and domestic) have been able to hold above their February lows means there’s a chance that a renewed advance can begin at any time. But we won’t predict; we’ll just follow the market’s lead, while keeping you apprised of the action in the highest potential emerging markets stocks we can find. Today we add another name to the watch list; it’s an old friend that just hit a new high a couple of days ago.

The way the markets have been acting, it won’t be a chore to say goodbye to 2018. We’ve avoided the worst of the declines of the second half of the year, but the bears have definitely had the upper hand for months. That’s why I’m featuring an unaccustomed defensive stock in today’s issue.

While there are an endless number of things being talked about and analyzed, keeping it simple is usually better. And with the trends of the major indexes and most stocks pointed down, we remain in a defensive posture—in fact, we’ve had at least 70% cash on the sideline for the past two months.

That said, we’re ready and waiting for the next upturn. In tonight’s issue we continue to massage our watch list, review our three holdings, write about two names that are leaders of new growth “theme” and review a couple of secondary market timing indicators. When the next sustained upmove comes, there will be lots to sink our teeth into, but until then, stay patient.

Last but not least: If you celebrate, have a very Merry Christmas!

There isn’t a ton of good news in this new issue, but there are definite signs that emerging market stocks are making an effort at putting in a bottom. Emerging market stocks (as reflected in the MSCI EM ETF) are above their 25-day moving average and have put a little daylight between themselves and their late-October low. We’re also seeing a few stocks attracting flashes of buying interest, which is also a hopeful sign.

The good news is that we have a new intermediate-term market-timing buy signal. The bad news is that our long-term market-timing indicator remains negative—and that markets as a whole remain in disarray, with no clear leaders.
Thus, some caution is still warranted, at least until the end of the year, as tax-selling forces will hold some stocks down.
But today’s recommendation is not one of those. Instead, it’s a little-known biotechnology stocks with big connections and great growth prospects.

Today’s new addition is, like last month’s, a stock that has bucked the broad market’s trend and gone up!
It’s an industrial biotechnology stock. And the secret to its success lies in a proprietary technology platform that uses artificial intelligence and machine learning to create new proteins for use in various industries.