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Current Market Outlook


The market cracked its intermediate-term uptrend last week, with all the major indexes diving below their 50-day lines decisive fashion, and it appeared they could be ready to go over the falls. But as has been the case for months, the market reversed, with a decent-looking bounce to end the week. Overall, the trend of the major indexes remains effectively sideways, with no net progress for five-plus months at this point. And for individual stocks, it’s mostly the same story—we’re still seeing many that are holding up well, but few are going up, so no real money is being made. We’re still game for holding your strong, resilient stocks, especially if they’ve already taken some hits and held support. But we also think it’s best to mostly lay low, holding plenty of cash and being choosy on the buy side until the buyers flex their muscles. We’re dropping our Market Monitor down to level 5.

This week’s list has a good number of names that have recently shown strong accumulation and have held most of their gains, despite the soft environment. Our Top Pick is RingCentral (RNG), which announced a game-changing deal last week that lit a fire under the stock. Dips would be tempting.

Stock Name	Price	Buy Range	Loss Limit
Coupa Software (COUP)	262.20	143-147	126-128
Edwards Lifesciences (EW)	228.06	222-226	204-206
Lennar (LEN)	61.85	57-58.5	52-53
Medicines Company (MDCO)	56.98	57-58.5	52-53
Proofpoint (PFPT)	113.79	128-131	117-119
RH Inc. (RH)	252.93	168-172	152-155
RingCentral (RNG)	238.73	164-170	144-148
Seattle Genetics (SGEN)	150.85	83-86	75-77
Visteon (VC)	89.82	76-79	70-71
ZTO Express (ZTO)	28.84	20.2-21	18.8-19.3

The market is looking a little healthier, but it’s too early to call the all-clear yet. Still, many of our stocks are looking better, with several hitting new highs in recent days.
This week’s recommendation is an oil-patch giant that pays a good dividend, is undervalued, and is going up—what’s not to like?

With the market now down 1.25% on the day, some of our buy-writes are reaching, or breaking, our break-even levels. If this selloff continues, we may need to exit or adjust these positions. If we adjust our buy writes, we will likely close the call we’re short and sell another call, which will further lower our cost basis.

LEAP Options on Oil Stocks

I get questions quite often about how I use stops. Some traders have hard and fast rules such as “If I’m down 25% (or 50% or whatever) on a position I exit immediately.” I really don’t have such rules.

With the major indexes working on their third straight week in the black, the intermediate-term trend remains up—so we believe you can slowly put money to work as stocks show you attractive entry points.

The Cabot Emerging Markets Timer has edged its way up to a new buy signal. While we want to be cautious until we get confirmation of this uptrend, we will increase our exposure slightly. We will fill our position in TAL Education, changing its rating from Hold a Half to Buy.

It’s been another productive week for the market, building on what is now six weeks of bottoming action in the major indexes.

Stocks are looking to notch their fifth straight week of gains today, so it’s obvious the evidence continues to improve. We see three main positives when it comes to the market right now.

This was another week of relatively scant stock-specific news. Action will heat up in three weeks once our companies start reporting Q1 results. Alcoa (AA) will get things going on Monday. There are no ratings changes this week.

The intermediate-term trend remains clearly up, and the broad market is still in good shape. Moreover, on an individual stock basis, most Top Ten stocks that have retreated have barely given ground.

The major indexes have all been dithering sideways most of the week, but aren’t giving back any of their gains, either.

I often get asked how I choose which order flow trades to follow and which to avoid. Two trades yesterday and today do a good job of illustrating my thought process:

In my morning email today, I highlighted a large trade in Anadarko Petroleum (APC). This trade is referred to in the options trading world as a Butterfly. Here are the details of the trade:

After a sharp two-week correction that targeted growth stocks in particular (and high-flyers like TSLA and ZM above all), the market may or may not be ready to resume its uptrend. For now, however, I’m keeping it simple and staying heavily invested.
Today’s recommendation is a stock that’s been in the news recently and might be viewed as the next Tesla, but I don’t like that comparison, as there are numerous differences. In any case, it has great potential and I think you’ll like the story.

As for the current portfolio, something’s got to go to keep the portfolio at or below 20 stocks and the victim this week is Zscaler (ZS), which has brought us a fine profit in five months and is now at risk of giving some back.


Full details in the issue.

This week we are going right back to a stock that we were involved with last month, which has handled the market weakness very well.