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Last week didn’t start off so well, with the major indexes sagging during the first four days; however, many potential leaders that popped higher the week before held firm. And then, on Friday, the market bolted higher! Clearly, we’re still in a choppy and tricky environment, but the action we’ve seen during the past two or three weeks looks like accumulation to us; at the very least, it looks like the sellers have lost their grip on things. We’re keeping our Market Monitor in neutral territory because it’s still early; many stocks are simply repairing the damage they suffered since April, as opposed to launching into new advances. But we’re growing more encouraged, and it’s fine to ratchet up your aggressiveness by one step.

This week’s list has many enticing names and growth stories from a variety of industries. Our favorite of the week is Athenahealth (ATHN), which isn’t at an ideal buy point but has shown a classic huge-volume breakout followed by tight trading ever since. The story is great and we think you can start a position on any dip.

Stock Name	Price	Buy Range	Loss Limit
Acuity Brands (AYI)	0.00	58-60	-
Apple (AAPL)	248.94	590-610	-
Athenahealth (ATHN)	0.00	91-95	-
CAB (CAB)	0.00	42-45	-
Cirrus Logic Inc. (CRUS)	0.00	35-38	-
The Gap, Inc. (GPS)	0.00	31-33	-
Seagate Technology (STX)	0.00	29.5-31.5	-
ServiceNow (NOW)	341.86	26.5-29	-
Tesoro (TSO)	0.00	30-32	-
Western Refining (WNR)	0.00	24-25	-

I am in Singapore this week as U.S. markets and Explorer recommendations struggle a bit.

I had a chance to visit three Luckin Coffee shops in Singapore. Hard to draw conclusions from this small sample but all three seemed very professional and fully automated with no cash accepted resulting in no lines at all. Spoke with maybe a dozen customers who like the ease of use, variety of flavors, and the price. Several said they also go to Starbucks. One only needs to download the Luckin app to get service which locks in customers to receiving a stream of deals and incentives.

While concerns over the Covid Delta variants are escalating, the market has steadied as the week progressed as 85% of S&P 500 companies have exceeded analysts’ Q2 earnings expectations, according to FactSet. Still, investors remain moderately cautious and relatively risk averse. Today’s new recommendation is an overlooked stellar fund run by none other than value investor Bill Ackman.

This was a difficult week for stocks. Yesterday the S&P 500 sank 2.3% while the tech-heavy Nasdaq declined 3.6%. Collectively, the so-called “Magnificent Seven” lost $768 billion in market value.

America does face some uncertainty but overall has a strong economy but, as I have highlighted, the stock market has become too concentrated at the top and debt is building up too rapidly. China, on the other hand, faces economic issues such as weak consumption, a property slump, 20% youth unemployment, and a struggling stock market in the red so far in 2023. Given the size and importance of China’s economy, this impacts all markets.

The market leveled off last week after the huge election surge. Stocks are trying to find a more sober post-election footing.

The S&P 500 was down very slightly last week after soaring 5% in the three days following the election. The initial reaction to the Trump victory was higher growth expectations and a surge in cyclical stocks countered by a spike in interest rates. We’ll see if those trends continue after the market fully digests the election.

The majority of the evidence when it comes to the overall market remains positive, but the environment for individual growth stocks remains very challenging—many are still holding up well, but no real money is being made as waves of selling pressures show up every couple of days. We’re still holding our resilient names and aren’t opposed to new buying here or there, but it’s important to hold some cash and keep new buys small until the bulls step up to the plate for more than a few hours at a time.

“It has been an exhausting search to find an advisory service as good as Cabot Small-Cap Confidential. The proof is in the pudding.”
D. Napoletano, DMD,
Middletown, New York

My gain was 105% on MT. That’s four times the cost of your service for me. I did show a small loss on NVLS and SPY but this is awesome. Thanks again.
Dave

Cabot Market Letter is “one of just a handful of services whose market timing has beaten a buy-and-hold over the last 15 years on a risk-adjusted basis.
Hulbert Financial Digest, October 2011

The PEG ratio is frequently used as a convenient rule of thumb, but its sole use can produce wildly wrong valuations. Here’s why.

We’re now presented with an interesting situation. The broad market, which hit record highs just last week, is now sick, thanks to investors’ perception that the coronavirus will negatively affect global trade. But the marijuana sector, which has been in a correction for more than two years, has many stocks that have been building bottoms.



No one knows how this will shake out in the short term, though clearly, the long-term potential of the marijuana sector remains intact.



Nevertheless, by observing the action of individual stocks and following time-tested procedures, we will come through this in fine shape. Today’s issue includes a few partial sells as well as a handful of downgrades while we wait for the dust to settle.



Full details in the issue.

We’ll let everyone else fight it out over the meaning and truthfulness of the DeepSeek revelations—as always, we’ll stay focused on the actual evidence, and here’s what we see: First off, the broad AI infrastructure areas look very iffy; the odds favor most chips, networking and electricity stocks are in the so-called penalty box. That said, the rest of the market took on water today but didn’t look abnormal. We do view the dramatic action as a yellow flag but we’re also not panicking as many of the names that had begun to perk up/break out are still acting well enough. We think it’s prudent to drop our Market Monitor back to a level 6 and take things on a stock-by-stock basis from here.

This week’s list does have a couple of AI-related names that got whacked, but the rest are from other areas that look fine. Our Top Pick is a name that looks like it’s finally, decisively changed character. Start small and aim for dips.

It was another positive week for the market, with some major indexes nosing to new highs, and while it’s far from 1999 out there, individual stocks are seeing very few breakdowns while the leadership ranks gradually expand. Of course, there remain some headwinds out there, but the intermediate-term evidence remains positive, and we’re now even seeing some longer-term evidence start to point up. Thus, we’ll nudge our Market Monitor up another notch to a level 8.

This week’s list has something for everyone, with some zingers, some steady Eddies and more than a few recent earnings winners. Our Top Pick looks like an emerging blue chip in the cloud software field, and shares emerged from a big consolidation after earnings last week.

Current Market Outlook


For many weeks, we’ve been writing that there’s more good than bad in the market, and indeed, while choppy, many names did work their way jadedly higher. But now the shoe is on the other foot: The intermediate-term trend is now down for the major indexes, and we’re starting to see more and more individual stocks follow suit. It’s not a complete disaster, and given the on-again, off-again environment of 2021, we’re not ruling anything out, including a turn back up in the days or weeks ahead. (Even now, we’re fine sticking with your strong, profitable stocks.) But after a couple of rounds of sharp distribution and some breakdowns among leading stocks, we think it’s simplest to say the onus is on the bulls—we need to see at least a few days of constructive action and some upside power in the indexes and individual stocks to conclude the sellers are losing control. We’re leaving our Market Monitor at a level 5 and, until proven otherwise, would play things cautiously with only small new positions, trailing stops and a decent chunk of cash.

This week’s list has an interesting crop of stocks, ranging from commodity to reopening to legitimate growth outfits. Our Top Pick is CF Industries (CF), which is emerging from a multi-month dead period with a lot of power; as with most names in this market, try to buy on weakness.

Stock Name	Price	Buy Range	Loss Limit
Affirm Holdings (AFRM)	108	105-111	89-92
SKIN (SKIN)	26	24.5-25.5	21.5-22
Caesars Entertainment Corp. (CZR)	118	113-117	102-104
CF Industries (CF)	61	58-61	51-53
ConocoPhillips (COP)	71	67-70	61-62.5
International Game Technology (IGT)	28	26-28	22.5-23.5
Live Nation Entertainment, Inc. (LYV)	98	95.5-98.5	87-88.5
Matador Resources Company (MTDR)	40	37-39	32.5-34
Palo Alto Networks (PANW)	470	457-472	417-427
Paycom Software (PAYC)	495	480-495	440-450

It looked like the bulls were ready to put up a fight last Wednesday, but it’s been all down since then, lowlighted by today’s action. Stepping back, we have two thoughts: Short term, there was definitely some panic today, and the fact that we saw a solid intraday bounce (closed well off the lows) implies some sort of bounce is possible. That said, the sharp, straight-down action from the market peak less than four weeks ago tells us a good amount of repair work is needed even if we do bounce. In terms of actions, we haven’t been pushing the envelope for many weeks, so if you have a good-sized cash position, we wouldn’t necessarily sell wholesale. That said, you should honor most stops (simply holding everything and hoping isn’t advised) while remaining patient. We’ll drop our Market Monitor to a level 4 (from 6) given the damage.

This week’s list has a lot of proper charts even after the latest selling storm. For our Top Pick, we’re going with a well-situated biotech firm that popped on positive drug trial results that will dramatically expand the opportunity for the big-selling drugs already on the market.