There’s not much to say when it comes to the market—the downturn that started in late August continues, with the major indexes back down to their May/June lows, keeping the intermediate- and longer-term trends pointed down. Moreover, after last week’s Fed meeting, the sellers finally came around for many resilient names, causing a bunch to crack support. Today, we’re staying cautious and continuing to hold plenty of cash, but we’re keeping an open mind as we see how this retest phase plays out. Our Market Monitor is down to a level 3.



This week’s list is mostly names that have taken on water (like everything else) but are still acting “normally.” Our Top Pick is a name that’s acting very unusually good, and it has a good story and excellent growth, too.

This week offers a few potential trades in Micron (MU) and Nike (NKE). The following week offers us next to nothing in the way of trades, but no worries, because on October 14 earnings season begins in earnest with the big banks (JPM, C, WFC, MS, etc.) due to report.

I will be introducing short strangles when we enter earnings season and will be covering the strategy during our first webinar of this upcoming earnings report. Regardless, if you wish to use the strategy it will be a wonderful introduction to an approach that many professionals use as their bread and butter strategy. I recently received an email from an old subscriber who has been using the strategy since he learned my approach. My goal was to wait one more earnings season to introduce short strangles, but I have reconsidered after his email and will be utilizing the strategy, in addition to our already established iron condors approach, during this upcoming earnings season.

It’s ugly out there, as virtually everything has been caught up in the merciless selling the last couple weeks. As a result, we are parting ways with three more stocks this week before their losses become even bigger. But we’re not completely battening down the hatches: Today’s addition to the Stock of the Week portfolio is a small-cap growth stock courtesy of Cabot Early Opportunities Chief Analyst Tyler Laundon. It’s not a household name, but it’s growing fast by taking full advantage of the return to relative normalcy in a post-Covid world.

Details inside.

Last Tuesday’s hot inflation report, along with Thursday evening’s earnings warning from FedEx, led to a terrible week for stocks, which keeps the negative top-down evidence in place: Both the intermediate- and longer-term trends of the market, as well as most stocks and sectors, remains pointed south. On the positive side, we still see many stocks doing a solid job of holding their own, and sentiment is firmly on the bearish side of the fence, and both of those represent dry tinder—if something goes right in the world (what a concept!), we think there’s a chance of a really solid rally. But bear markets are all about patience; we’ll leave our Market Monitor at a level 4.


This week’s list has another batch of resilient stocks, and our Top Pick has been bottoming out for months, and a decisive push higher should be buyable.

There’s been a lot of bad news in the past couple of weeks, but nothing has changed with the market--it’s still trending down, and the broad market remains on the outs, and today, we started to see the first signs that even the many resilient stocks are coming under the gun. Big picture, we’re continuing to advise a cautious stance with much more cash than stocks and patience as we wait for the bulls to re-take control.


And we do think they can re-take control, possibly sooner than most think: There’s so much negativity and bearishness out there that any spark could ignite a big rally, if not a sustained uptrend. But as always, we have to see it first to act on it, so we’re continuing to stay close to shore--we’re selling one name tonight and placing the rest on Hold.


We spend most of tonight’s issue discussing the overwhelming negativity out there, which is setting the stage for the next advance, as well as diving into a handful of new names to watch, including one cheap cookie-cutter story that looks ready to go if the market can stabilize.

In the September issue of Cabot Early Opportunities, we continue to try and thread the needle of this bear market, selecting a few potential opportunities to buy while adding others to our Watch List.
This month’s issue features a couple of old friends that are shaping up again, plucks one healthy stock off the Watch List and digs into two fresh names that seem to have the wind at their backs.


Enjoy!

Before we dive into this week’s idea, let’s clean up a couple of positions that expired last week. Because of the general market weakness, today we are going to sell our stock positions in Qualcomm (QCOM), Oak Street Health (OSH), and Global Foundries (GFS). Once these sales are made, we will no longer own a stock or option position in these stocks.

Sparked by a “hotter”-than-expected inflation report on Tuesday, the market had its worst week since June. The numbers were not pretty as the S&P 500 fell 5.15%, the Dow lost 4.13%, and the Nasdaq declined by another 5.5%.

Sparked by a “hotter”-than-expected inflation report on Tuesday, the market had its worst week since June. The numbers were not pretty as the S&P 500 fell 5.15%, the Dow lost 4.13%, and the Nasdaq declined by another 5.5%.

We added another position to the mix, an iron condor in IWM, last week. And shortly after we added our range-bound iron condor, we decided to lock in profits on our SPY bear call spread, marking 10 out of 11 profitable trades since we initiated Quant Trader. Moreover, our holding period is only 17 days, far less (roughly 66% less) than if we were holding our trades through expiration.

My goal this week, if the market allows, is to add another bear call spread and bull put spread to the portfolio. My hope is that we can squeeze a bit more premium out of the October 21 expiration cycle, but we will have to see what is being offered.

Not much has changed with our trades since last week’s issue. As a result, I’m simply going to reiterate what I stated last week.

The portfolio continues to perform well in what has been a very difficult market for most traders and their respective portfolios. While I would love to have more trades on, I’m perfectly fine keeping our level at five open trades per expiration cycle with the understanding that as opportunities arise, I will add more. But with a widely vacillating market and a host of bearish crosscurrents I plan on maintaining a fairly conservative approach.

Earnings season is inching closer, but we are still several weeks away (mid-October) from the big banks kicking the earnings season off.

That being said, the next two weeks should offer some potential trades as FedEx (FDX) and Costco (COST) are due to announce later this week and Micron (MU) and Nike (NKE) announce the latter part of the following week. All four offer potential trades.



If I decide to make a trade, as always, I will send out a trade alert with all the details.

The sellers ran wild today, with the Dow losing 346 points, the Nasdaq falling 274 points (2.1%) and the average growth stock we own or watch down nearly 5%. From late January through late February, we began to see a change in character, with a string of wild up-down-up-down action in leading stocks—coming after a big run, that’s a sign the bears have begun to put up a fight. And now, at least when it comes to growth stocks, we’re seeing the result, with a ton of stocks cracking their intermediate-term uptrends and many coming unglued.

The market has gotten a little choppy and interest rates are to blame. At least, that’s what they say. The market indexes fell last week and have been all over the place so far this week.

Vaccines are being rolled out, and the economic recovery will be strong in 2021. Stocks that will benefit from the economic recover should have strong tailwinds. While our entire portfolio should benefit from an improving economy, two stand out to me.

After a rough week, the market is right back in business. Just when stocks appeared on the cusp of a deeper selloff, the S&P 500 started off this week with the best session since June.

Today’s note includes earnings updates, ratings changes, the podcast and the Catalyst Report.

The big picture for the market is that the uptrend is intact but under the surface we’re continuing to see pockets of turbulence. While the S&P 500 is just 2% off its high from last week and the S&P 600 Small Cap Index hit a fresh all-time high yesterday, the Nasdaq is 6% off its high and trading right on its 50-day line.

You may have seen that a relatively new Explorer idea, Fisker (FSR), was up 38% yesterday. It turns out that my analogy of comparing the company to Apple’s relationship to Foxconn was truer than even I could imagine. The news yesterday was that Foxconn will be making a future Fisker model electric vehicle, and even better, it may be doing so in my home state of Wisconsin.

The stock market is clearly accelerating the “reopening” trade. Small cap and cyclical stocks as well as commodity prices are surging, interest rates continue to tick up (the 10-year Treasury yield is now 1.38%, up from 0.92% at year-end), and novel financial vehicles like SPACs, Bitcoin and Reddit are attracting a stunning amount of attention. With the government plying the market with endless quantities of free money (drinks?), investors are giddy and going “all in.” The pot is now huge.

Judging by some headlines and my Twitter feed, you would think the markets are in meltdown mode. But I just checked and the S&P 500 is only 1.9% down from its all-time high. And the Russell Micro-Cap Index is down 4.0% from its all-time high. It’s important to remember that it would be totally normal if the market did continue to pull back, judging by previous bull markets.

Today’s note includes earnings updates, ratings changes and the podcast.

The market took another hit this morning, but like yesterday, the major indexes have found support as the day has progressed—just after 3 pm EST, the Dow was down 70 points while the Nasdaq was off 66 points. Part of the reason for the recent selling is supposedly due to inflation fears and higher interest rates—indeed, the 10-year note reached north of 1.30%, which is low historically, but up 30 basis points (0.3%) since late January and 50 basis points (0.5%) from the start of December.

As mentioned last week, today’s Weekly Update will be an abbreviated version owing to the short work week and because of family commitments as our kids are out of school and I am solo parenting, making free writing time hard to come by. That said, to help you keep track of the latest guidance on all positions I’ve maintained our normal formatting and included short notes on all positions.

From a top-down perspective, the market and our trend-following indicators are in fine shape, but we’re now seeing some big-picture yellow flags (tons of speculative activity) and, more important, growth stocks are beginning to look iffy. We’re not selling wholesale, but we do have a few tweaks today:

This auto parts supplier is expected to announce earnings on February 10, with EPS estimated at $5.08 per share, on revenues of $2.77 billion.

This recent IPO reports earnings on February 1, and analysts are forecasting annual growth of 45.86% over the next five years.

This semiconductor cleaning company earned $0.73 per share last quarter, beating analysts’ estimates by eight cents.

Based on the below press release highlighting the agreement for Australia’s Lynas to build a rare earths refinery in Texas, I recommend you sell your MP Materials (MP) position.

Earnings for this insurance company are due on February 3, with a consensus estimate of $2.81 per share. Nine analysts have recently increased their EPS forecasts for the company. The shares have a current dividend yield of 2.0%, paid quarterly.

This preferred stock is backed by a global financial company.

Over the long run, the S&P 500 has produced an average annual return of about 10% per year. Our aim at Cabot, through our various services, is to do better, and in the long run we do.

We are raising our price target on General Motors (GM), following our review as the shares have surged through our 49 price target, to the mid-50s.

The top five holdings in this ETF are: Aphria Inc (APHA.TO, 9.09%), Canopy Growth Corp (WEED.TO, 7.73%), GW Pharmaceuticals PLC ADR (GWPH.L, 7.62%), GrowGeneration Corp (GRWG, 6.90%), and Tilray Inc (TLRY.TO).

Last Friday the ADNT January 36 Call that we sold for $2.15 expired worthless (good situation), leaving us with our stock position, and an approximate profit of 6.5%.

This gold producer just reported that its gold production rose by 32%, year-over-year. The company also raised its dividend.

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.