The week I will add new trades in both BITO and KO.

We locked in some nice gains on both trades last week which brought our total premium return to 49.75%. My hope is that we are able to add several short-term trades to the mix, in addition to the new trades in BITO and KO.

Last week was a bit of a dud for earnings announcements.


While numerous companies announced earnings, only a few companies met our guideline of having high levels of options liquidity. But that all changes this week.



This week could be the busiest of the earnings season with upwards of seven potential trades. My guess is that we will make anywhere from 3 to 5 trades with most of the trading activity occurring during the latter half of the week.

It was hardly smooth sailing for traders last week, as the indexes got hit hard on Wednesday and Thursday, and then roared back to life on Friday.

It was hardly smooth sailing for traders last week, as the indexes got hit hard on Wednesday and Thursday, and then roared back to life on Friday.

Very impressively, the rally that started late in 2022 continued last week, as the S&P 500 gained 2.7%, the Dow rose 1.8%, and the Nasdaq tacked on another 4.5% of gains.

In the January issue of Cabot Early Opportunities, we take heed of the improving market breadth and dig into five companies from different industries that look compelling now.

Our top pick this month is a small-cap oil and gas equipment company that’s a leader in the offshore market. I also feature an online retailer specializing in the luxury market, an emerging MedTech name, a customer experience specialist and an online learning marketplace that’s poised to recover nicely.

As always, there should be something for everyone in this month’s issue!

The broad market began to show strength in late December, and last week we saw further progress, with new lows continuing to shrink to very bullish levels while a granddaddy blastoff measure (the 2-to-1 Blastoff Indicator) turned green. It’s all very encouraging, but now we need to see more “primary” evidence turn positive, including the trends of the major indexes and many more “real” breakouts from high relative strength stocks. We’re optimistic, but are in a trust-but-verify mode; for now we’ll move our Market Monitor to a level 5.

This week’s list is heavy on many themes that are working, including solar, metals, infrastructure, China and travel. Our Top Pick is from the latter area and has turned the corner in a decisive manner.

The new year is off to a good start, with stocks across the board showing true signs of momentum and very few still in the doldrums. Several of our Stock of the Week positions, in fact, are hitting either all-time highs or 52-week highs! But just in case this is yet another bear market rally, today we’re covering our bases by adding a big, well-known bank trading at bargain prices. It’s a longtime recommendation from Cabot Undervalued Stocks Advisor Chief Analyst Bruce Kaser – and one that Bruce says has more than 60% upside.

We finally added our Dogs (and Small Dogs) of the Dow portfolio to the mix! As it stands, we have five portfolios in the Fundamentals service, three passive portfolios and two active. While our passive portfolios are fully up and running, we still need to add several more positions to our active portfolios to get them fully situated.

The market raced higher again last week and is now officially in a short-term overbought state. In fact, all of the major indices stand in a short-term overbought state. Historically, this type of situation leads to a mean-reversion event, but if we are indeed in a “new” bullish market environment, an overbought state can lead to extended moves. It’s always the transitions from high to low IV environments or vice versa that give high-probability spreads challenges. And while our positions are okay at the moment, another round of bullishness over the next week or two will force us to make either an adjustment or simply take off our trades for a small loss. Of course, I’m also still looking to add a position or two to the mix, but I don’t want to lean too heavily in one direction.

Our BITO and KO are all due to expire this week. I will allow our BITO calls to carry through expiration, but plan to buy back our KO puts and immediately sell more puts, thereby collecting more premium for our position in KO.

Surprisingly, if BITO does close above our 11.5 strike at expiration this week, we should see a nice overall profit in the position. I’m not sure many can say they’ve been able to scratch and claw a profit out of BITO, especially when you consider we took on the position back in early June when BITO was trading for around $18. Again, another reason why premium selling should be an integral part of everyone’s investment plan.

Last week we entered our first trade of the earnings season. Last Friday, JPM announced earnings, and the stock immediately pushed lower after the release. The stock opened at 135 and tested the short 133 put of our iron condor. As a result, we decided to exit the one-day trade for just over 4%, not too bad for a one-day gain. Of course, JPM continued to trade higher, giving those that decided to hold on to the trade a little longer the opportunity to take the trade off the table for roughly double the return.

There’s a case to be made that we are in the early innings of a commodity bull market. I’m starting to see lots of articles about a looming energy shortage which will hit this winter.

The market is selling off on Tuesday after briefly recovering last week. The latest worry is the debt limit. While this issue is likely to be resolved without any disaster one way or another, it puts a negative weight on an already teetering market.

Capital market, economic, geo-political and societal changes are happening quickly.

A recent survey by the American Association of Individual Investors (AAII) showed that the percentage of investors who think stocks will rise over the next six months plunged to its lowest level in more than a year.

The big developments over the last week have been the situation with the potential failure of Evergrande (Chinese property developer) and interest rates. As of mid-morning Thursday, we appear to be moving past these potential issues.

Today, markets are rallying as much as they fell on Monday ahead of the Fed meeting this afternoon.

Monday’s market tumble to two-month lows, which was the first gap lower that also pushed the broad market beneath its 40-day moving average since mid-summer, triggered a number of our sell-stops.

Monday’s big, sharp market pullback was shocking to some investors, and scary enough to cause many to sell stocks in the fear that the correction would go deeper. It certainly might—the September/October period often brings major corrections—and maybe it should, though should is a word that I try to avoid when writing about the market.

It’s not news that the stock market has been sloppy lately. After the steady march upward to a doubling of the S&P 500 from the early 2020 low, and a 33% increase from year-end 2019 before the pandemic, one can hardly be disappointed in the market’s performance.

This week, everyone is talking about Evergrande. In case you’ve missed it, Evergrande is a Chinese real estate developer. Its core business is building homes, but it branched out into other directions like investing in EVs, a theme park, and other business lines.

One of this year’s greatest paradoxes has been inflation’s return. On the one hand, the rising tide of inflation has lifted industrial metal prices to levels not seen in over a decade. But on the other hand, gold and other precious metals haven’t really benefited from it. What’s the reason for this seeming contradiction?

After a stunningly strong market so far this year, with the S&P 500 producing a 20% total return through Monday, the slow grind-down of most stocks since early September has seemed interminable. The 1,100 largest stocks in our 3,000-stock database have declined only 2% in the past two weeks, but the steady flow of higher inflation news, a growing likelihood of interest rate increases, a never-ending pandemic, the prospect of higher taxes of all kinds and memories of the tragic events of 9/11 makes us feel like we’re stuck inside on a cold, rainy day watching an awful four-hour movie.

In the past 30 days, five analysts have increased their EPS estimates for this benefits management company.

Wednesday has witnessed some mixed action among the key metals, with liveliness in silver, weakness in copper and platinum and exceptional strength in steel.

The good news this week is that the state of Connecticut appears close to marijuana legalization, as the state Senate passed legislation early Tuesday morning, with an unexpectedly close 19-17 vote. Today—the last day of the 2021 session—the bill heads to the House of Representatives, which is expected to approve it. But you never know.

This insurance company beat analysts’ earnings estimates, posting EPS of $6.11, compared to the estimate of $3.87. The shares have a current annual dividend yield of 2.38%, paid quarterly.

Earnings estimates for this auto seller have risen by 35.7% in the past 60 days, with the June quarter EPS now expected to come in at $2.58.

Moving Biogen (BIIB) from BUY to SELL.

We are initiating coverage of Organon (OGN) with a BUY rating.

This afternoon we are making four ratings changes:

This food company beat Wall Street’s earnings estimates by $0.08 last quarter. Its shares boast a current annual dividend yield of 1.98%, paid quarterly.

Despite beating sales and earnings estimates for the quarter ($6.48 billion vs. $6.41 billion and $1.60 per share, compared to the estimate of $1.40 per share), shares of this discounter fell, due to forecasted rising freight costs—a good opportunity for entry.

In the past 30 days, 10 analysts have increased their EPS forecasts for this energy company. The shares have a current annual dividend yield of 7.09%, paid quarterly.

The big news this week is that Amazon will no longer screen most job applicants for marijuana use. Plus, the giant is supporting federal marijuana legalization. That’s one more step in the right direction.

A few Cabot Options Trader subscribers have asked me about ways to protect gains in their portfolios, so I thought I would write to everyone with a couple of strategies using options to hedge your portfolio.

A subscriber recently asked me if I keep a journal of my trades. Many traders keep journals so they can look back at their trades and evaluate what they did right and what they did wrong.

Want to know how the big institutional investors use options? Here is an example of how one trader spent $132 million on three technology stocks.

Options trading has its own vernacular. To know how to do it, you need to know what every options term means. Here are some of the basics.

Our Cabot Top Ten Trader’s market timing system consists of two parts—one based on the action of three select, growth-oriented market indexes, and the other based on the action of the fast-moving stocks Cabot Top Ten features.