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.

It remains pretty much the same story out there as we’ve seen for at least three weeks, if not longer. First, when it comes to the top-down evidence, it’s solid, with the intermediate-term trend of most everything pointed up; second, looking at things from a bottoms-up perspective, the evidence is encouraging, as many fresher breakouts have emerged in the past month or so; and third is more of a heads up, as near-term sentiment is very elevated and earnings season for most leading titles is ramping up, so some tricky trading (volatility, especially among extended stocks) is possible. Thus, we’re staying flexible, but given the overall positive vibes, are leaving our Market Monitor at a level 8.

This week’s list actually has many big-cap titles but there’s plenty for everyone. Our Top Pick appears to have finally left behind a multi-year consolidation after its Q3 report. Ideally you can get in on modest weakness if the market dips.

Stocks stayed the course this past week, holding near all-time highs despite myriad existential threats out there (expanding Middle East war, a toss-up presidential election two weeks away, Q3 earnings season underway, etc.). Clearly, the bulls are in control right now. That can change at the drop of a hat – or an unexpected news event. But we have to go with the evidence in front of us, and right now it’s saying, “Buy.”

But it does make sense to add some better values to the portfolio. And this week we do just that, adding an undervalued small-cap utility stock that recently caught the eye of Clif Droke, Chief Analyst of the Cabot Turnaround Letter.

Details inside.

Another week, another all-time high for the S&P 500 and Dow, while the Nasdaq is slowly creeping towards its previous highs. By week’s end the S&P 500 had gained 0.6%, the Dow had rallied 1%, and the Nasdaq had risen marginally.

Another week, another all-time high for the S&P 500 and Dow, while the Nasdaq is slowly creeping towards its previous highs. By week’s end the S&P 500 had gained 0.6%, the Dow had rallied 1%, and the Nasdaq had risen marginally.

It was yet another strong week for the market and countless stocks, many of which are breaking out to new highs. At some point the market may cool off, but for now at least, I’m not seeing any truly worrying signs. And in fact, the S&P 500 closed at a new record high as the index gained 1.44% on the week, while the Dow added 1.56%, and the Nasdaq rallied 1.63%.

Back on December 27 I suggested holding off on cannabis sector purchases given the group strength at the time. We had realized nice gains, and it did not make sense to chase the stocks. “I prefer to add on weakness rather than strength,” I wrote. I recommended adding on weakness of 2% to 4% or more in any of our portfolio names.

The AdvisorShares Pure US Cannabis (MSOS) and AdvisorShares MSOS 2X Daily (MSOX) exchange traded funds (ETFs) closed that day at 6.93 and 3.60, respectively, and went on to fall 4.5% to 9% over the next few trading days.

It’s been widely noted that the stock market’s sloppy start to 2024 is among the worst in a decade, or longer. Traders and TV commentators carry on about how the first trading day, or week, or month, sets the tone for the entire year. “How goes January, so goes the year” is a frequently bandied saying. It’s enough to make an investor toss in the towel and wait until 2025.

The longer I am in the investing world, the less I listen to this banter. It all sounds great, and maybe there are some years in which these ultra-short-term trends-as-predictors pan out, but they are so unreliable that they are worthless at best. Even if they had a 100% accuracy rate, why make a bet that this perfect record will continue?

The new year started with a whimper. Last week’s 1.5% down move ended a streak of nine consecutive up weeks for the S&P 500, the longest streak since 2004.

The streak had to end eventually. And a pullback after a 15% move higher is normal. Bull markets tend to have several 3% and 5% down moves. There may be more downside in the weeks ahead. But we are still in a market that is trending higher.

In today’s note, we discuss the recent earnings reports from Walgreens Boots Alliance (WBA). Our note also includes the monthly Catalyst Report and a summary of the January edition of the Cabot Turnaround Letter, which was published a week ago Wednesday.

WHAT TO DO NOW: Continue to lean bullish, but let’s see how this growth stock selling wave progresses. The top-down evidence remains in fine shape when it comes to the overall market, and most growth stocks have fallen off this week, but done so normally (while a few others may be trying to emerge). Thus, we’re giving names some rope, but we’re not tolerating any intermediate-term breaks. In yesterday’s special bulletin, we sold half of DraftKings (DKNG) and placed Duolingo (DUOL) on Hold, leaving us with 27% in cash. We’ll stand pat tonight, though are watching things closely and will be in touch if we have any more changes in the days ahead.

The new year is starting with big momentum. The S&P 500 had a torrid late-year rally where it soared about 16% between late October and the end of the year. Stocks closed out the year with nine straight up weeks, the longest streak since 2004.

The final numbers are in. And they’re impressive.

After a bear market in 2022, the market indexes came back sharply in 2023. That’s not unusual. Prior to last year, there had been nine years of negative S&P 500 returns since 1980. Seven of those down years were followed by up years, and four of those seven up years posted returns of 20% or higher. The market doesn’t usually stay beaten down for long.

There were no earnings reports or ratings changes this week. Due to the holidays, we will not be publishing a Friday note or podcast next week. The Cabot Turnaround Letter will be published next Wednesday, and our Friday note and podcast will resume on January 5, 2024.

WHAT TO DO NOW: Remain bullish, but don’t be surprised to see some uneasy trading. Yesterday’s market selloff was overdue, but it did nothing to change any intermediate-term evidence with the market or leading stocks. Near term, it’s probably more of a coin flip as to what happens, so we are picking our spots. In the Model Portfolio, we could have some more new buys soon but tonight we’ll hold off. We will, however, switch DraftKings (DKNG) to a Hold rating. Our cash position will remain around 26%.

First off, just a little housekeeping. I’ll be taking time next week to spend with my family, parents, siblings and new niece in Vermont. Much of our production staff will also be taking some time off, so there won’t be a Weekly Update next Thursday. If there is any pressing news I’ll address it via Special Bulletin.

I hope you have a Happy Holiday season!

Let the good times roll!

A good market just got better. A petering rally has been reinvigorated. And the good times may continue to roll through January.

It’s nice to see Duolingo (DUOL) responding well to another very solid earnings release. The company reported that Q2 revenue grew 43.5% to $126.8 million (beating by $3.1 million) while adjusted EPS of $0.08 improved from -$0.38 in the year-ago quarter and beat by $0.27.

It was a tale of two earnings responses with Eli Lilly (LLY) and Si-Bone (SIBN) yesterday.

Datadog (DDOG) Drops After Q2 Results

August expiration is near, and we need to roll a few positions in our various Fundamentals portfolios. Expect to see several alerts over the coming week as we roll into September and October expiration cycles.

SI-Bone (SIBN) reported yesterday afternoon that revenue rose by 30% to $33.3 million (beating by almost $2 million) and EPS came in at -$0.30, a penny better than expected. Management raised full-year guidance by $3.5 million to $133 million (at the midpoint), about $1 million more than the Q2 beat.

WHAT TO DO NOW: Remain cautious here as the correction plays out. Growth stocks continue to take the worst of it, with many names hitting intermediate-term peaks, though the selling is spreading to the rest of the market, too. Eventually, this should provide some excellent opportunities, but in the meantime we’re moving into more cash—today we’re going to dump our small-ish remaining positions of Monday.com (MNDY) and MasTec (MTZ), which will leave us with a bit over 50% in cash, which represents lots of buying power once the correction ends.

We can finally take our August 18, 2023, SPY 462/466 bear call spread off for a profit. If you choose to hold on to the trade to seek greater profits, please be aware of the risks.

Earnings Roundup: LUNG, RACE, ELF, SHOP, HUBS, FIX

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 Momentum 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 Momentum Trader features.