Before I dive into my election preview, I first wanted to address Palantir (PLTR) earnings as the company will report its quarterly results today after the close.

The big picture for the market and for growth stocks remains very positive in our view, however, some near-term uncertainties and headwinds have kept us from doing much buying of late, and today saw the first real, widespread distribution in growth stocks since early September. Right now, then, we’re focused on managing our portfolio through earnings season, holding our strong names while jettisoning weak ones and looking to accumulate fresh leaders.

Tonight, we are selling one of our smaller positions that keeled over on earnings, and placing on other name on Hold--but we’re also sitting tight with our other strong, profitable names as we see what earnings season will bring.

Given that the majority of Americans on both the left and the right favor cannabis legalization, it’s no surprise that marijuana has emerged as a significant campaign issue.

Therefore, it makes sense to think about election outcome scenarios and what they mean for cannabis investors.

Big picture, no matter what happens in the presidential election, cannabis wins. That’s because both candidates support major cannabis reform in one way or another. But obviously, some outcomes are better than others. Here are the three main scenarios, from best to worst.

For much of the last four years, the “friendly skies” have been anything but for the airline industry and its customers. The restrictive measures of the Covid era put the entire $1.2 trillion air travel industry into a tailspin, causing massive financial losses and layoffs for the major carriers, not to mention major headaches for travelers.

The problems began in March 2020 and continued through that year, but by the start of 2021, industry-wide losses totaled over $35 billion, with no fewer than 64 airlines around the world ceasing operations. By the time Covid restrictions were lifted in 2023 (in the words of a contemporary CNN report), “A handful [of airlines] have revived after announcing bankruptcy, or changed names, but the vast majority are gone for good.”

Ahead of a monster week of economic data and earnings releases the S&P 500 fell 0.85%, the Dow lost 2.6%, and the Nasdaq gained 0.4%

All in all, the evidence remains unchanged: The major indexes are positive but not exactly powerful, with resistance (such as near 500 on QQQ) still capping many measures, but leadership remains intact, with strong stocks refusing to give much ground and fresh breakouts from the past month acting well. Of course, earnings season is still ongoing, and you can never rule out the market’s key leadership being dented or some abnormal action appearing. But you can always find something that could go wrong in the market—right now, the buyers are in control. We’ll keep our Market Monitor at a level 8.

This week’s list is very broad, with everything from industrials to real estate to true-blue growth stories. Our Top Pick is a pure cyclical name that just busted out of a long-term consolidation on giant volume.

The deep breath before a toss-up presidential election has arrived on Wall Street, with stocks barely budging in the last two to three weeks. Investors are likely prepared for either outcome but are waiting until a winner is declared before resuming this two-year bull market rally. While we wait, it’s a good time to pare down our portfolio a bit, which we do today by saying goodbye to three recent laggards. We also add a high-growth tech stock with plenty of momentum that Mike Cintolo recommended to his Cabot Top Ten Trader audience a week ago.

Details inside.

Ahead of a monster week of economic data and earnings releases the S&P 500 fell 0.85%, the Dow lost 2.6%, and the Nasdaq gained 0.4%

Ahead of a monster week of economic data and earnings releases the S&P 500 fell 0.85%, the Dow lost 2.6%, and the Nasdaq gained 0.4%

As I mentioned recently, I’m now in Europe looking for intelligence and ideas.

This week I’m in Madrid and visited the stock exchange (bourse) and met with some local brokers to try to get a feel for the market and region. Like brokers always are, they were bullish on stocks and especially gold. One stock we discussed which I have followed from time to time is Banco Santander (SAN). It is in a nice uptrend and still well below book value, but I need to do some research and reach out to some friends who previously worked for Santander to get their views before considering a recommendation.

Instead, today I have a new gold stock recommendation.

This country has a massive shortage of housing.

It is estimated that the current demand for homes exceeds the national supply by a whopping 4.5 million. The shortfall has caused the median U.S. home price to double since 2011 and soar a staggering 40% just since the pandemic. In many areas, prices have increased a lot more.

High prices combined with the highest mortgage rates in decades have made housing unaffordable. Zillow estimates that only 15.1% of current non-homeowner households can afford a typical mortgage.

But there is reason to believe the housing problems will get a lot better in the years ahead.

Mortgage rates are falling. The average U.S. 30-year fixed mortgage rate has fallen to 6.6% from 7.2% this past May and 7.8% a year ago. And rates are likely to continue to trend lower from multi-decade highs in the years ahead. Prices are coming down too. The average U.S. home price has declined about 7% since the beginning of last year.

While the situation is likely to improve, the supply/demand imbalance will likely remain for several years. That’s a problem for the housing market and economy to work through. But it’s good news for homebuilders. New homes should be in high demand for years to come, and sales should increase with the improving conditions.

In this issue, I highlight one of the best homebuilders on the market. The stock has been a stellar performer as investors realize the opportunity. But it is still reasonably valued and has momentum. It should provide a covered call opportunity soon.

Before we dive into this week’s covered call idea we need to move on from our Rocket (RKT) position following expiration last Friday as the call expired worthless, leaving us with our stock position.

As the stock market soars ever higher, driven in no small part by the Magnificent Seven mega-cap tech stocks, vitriol again is being heaped upon passive investing. This form of investing, more commonly known as indexing, is considered “passive” because it considers no other traits beyond a stock’s weight in an index. There is no work involved in picking such stocks or setting the weighting – the index passively determines these. The opposite, of course, is “active” investing, in which investors work to select which stocks, and how much, to buy and sell. Active investing can involve a lot of activity.

This week, we review earnings reports from Agnico Eagle Mines (AEM), Goodyear Tire & Rubber (GT) and TreeHouse Foods (THS).

Next week, we anticipate earnings from Elanco Animal Health (ELAN), Macy’s (M), Gannett (GCI), Dril-Quip (DRQ), Vodafone (VOD) and Warner Bros Discovery (WBD).

Cabot Options Institute Quant Trader is focused exclusively on creating consistent returns using high-probability options strategies including bear call spreads, bull put spreads, iron condors and more. Whether you have questions about the strategies, or even about setting up your account, or how to make your own trades, Andy will answer all of your questions

Small caps have had a volatile week, which we can blame on the CPI inflation report (Tuesday) and subsequent move in interest rates. That all said, if you just woke up from a two-week nap you wouldn’t notice much at all at the small-cap index level. It’s actually a touch higher than it was on January 30 and currently challenging the levels seen last Friday (pre-CPI report).

That’s all a long-winded way of saying the market has digested the CPI report and determined (for now) that one slightly-higher-than-expected reading doesn’t make a trend. It’s helped that a few Fed officials have said the same.

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It sounds heartless to say, but successful investing is largely about exploiting the emotions of others.

The two biggest emotions to exploit in the market are obviously fear and greed. When investors are too fearful, it pays to exploit that emotion by betting the other way. And vice versa for greed.

Another common emotion to exploit is impatience.

WHAT TO DO NOW: Hold your strong stocks, but near-term, it’s OK to sit on your hands a bit and see how things shake out. The overall evidence remains bullish, but there have been some yellow flags of late and yesterday’s broad, sharp decline is likely to have some near-term reverberations. We took partial profits in Arista (ANET) yesterday, selling one-third of our shares, and placed Pulte (PHM) on Hold, leaving us with around 33% in cash—and some great performers. We’ll stand pat tonight, though if things settle down for a couple of days, we could put some of our cash back to work.

The market looks strong right now. The S&P 500 just made a new all-time high in a young bull market and the index is up 5.38% in just the first five weeks of this year.

Inflation is way down. The Fed is done hiking rates. The economy is still strong. And earnings are solid. That’s a good macroeconomic background for stocks. But how long will this good news last?

The world of major pharmaceutical stocks can be split into two camps: winners and laggards. Eli Lilly (LLY) is a clear winner, with its successful roll-outs of new treatments led by the immense promise of weight-control drugs like Mounjaro and Zepbound. Lilly’s shares have surged 545% (up 5.5x) in the past five years and are increasingly mentioned as a replacement for Tesla in the “Magnificent Seven.” The shares trade at 47x estimated 2024 EBITDA.

As I stated in our earlier alert, I will be sending out numerous alerts over the next few days. With 5 days left until the October expiration cycle, now is the ideal time to begin looking to buy back our short calls and sell more call premium going out to the November expiration cycle.

Our position in TTE is up 72.6% since we introduced it back on June 30, 2023. By comparison, the stock is up only 15.2% over the same time frame. With our short calls currently in the money and October 20 expiration only a few days away, I want to buy back our October 20, 65 calls and immediately sell more calls going out to the November expiration cycle.

Alphatec (ATEC) Releases Better Than Expected Preliminary Q3 Results

WHAT TO DO NOW: In yesterday’s update we wrote that the market still had a lot to prove, and indeed, the market is down further today despite a dip in interest rates—and more important to us is that some of the resilient names are getting hit with the market. One of those is Uber (UBER), which is cracking support on no news. We’re not craving more cash, but we’ll respect the action and sell one-third of our stake in Uber (UBER) this afternoon and see how it goes from here. Our cash position will now be in the upper 60% range.

Today I want to buy back our PFE October calls and immediately sell more call premium.

I will be exiting the JP Morgan (JPM) trade today. I will discuss the trade in greater detail in our upcoming weekly issue.

Okay, everyone, earnings season is finally upon us. I suspect we are in for an interesting earnings season, and to get us started, I will be holding a subscriber-only webinar tomorrow at 12 p.m. ET. Click here to sign-up. No worries if you can’t make it, we archive everything here at Cabot. You can find all the archived recordings here.

We have numerous positions to roll prior to the October 20, 2023. I’m going to start today with GOOGL an AMGN. I’ll be sending out several alerts over the coming days. Stay tuned!

After being tested on the upside and downside over the past month, we finally have an opportunity to close our October 20, 2023 iron condor in IWM for a nice profit. For those of you that wish to hold on for greater profits, please make sure you are fully aware of the risks.

With the SPDR S&P 500 ETF (SPY) trading for 429.69, I want to place a short-term bull put going out 42 days. As always, my intent is to take off the trade well before the November 17, 2023, expiration date. I’ll discuss the trade in greater detail in our upcoming weekly issue.

The broad market was taken down a notch yesterday, supposedly because job openings increased in August. I’m not buying it.

We’ll get average hourly earnings for September on Friday, which will probably show wage inflation continues to ease and the labor market isn’t as tight as yesterday’s market reaction implies.

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.