It’s Fed rate-cut week. Will Jerome Powell and company come out of the gates quickly, slashing rates by a full 50 basis points, as the majority of traders now expect? Or will they start with a more sober, 25-basis point cut … which is what I expect? In the long run, it probably doesn’t matter much. But in the current market, the answer will likely determine whether last week’s bounce-back has legs – or if another October bottom is in order.

In the meantime, today we add a stock that has nothing to do with interest rates: a fast-growing water company. It’s a recent recommendation from Tyler Laundon in his Cabot Early Opportunities advisory.

Details inside.

The market bounced back very nicely from the previous week’s losses, ahead of the big Federal Reserve announcement this week. By week’s end the S&P 500 had rallied 3.2%, the Dow added 1.9%, and the Nasdaq rebounded 4.9%.

The market bounced back very nicely from the previous week’s losses, ahead of the big Federal Reserve announcement this week. By week’s end the S&P 500 had rallied 3.2%, the Dow added 1.9%, and the Nasdaq rebounded 4.9%.

What a month! Markets have had some pretty wild moves since last month, gyrating with significant volatility, and that looks like it may continue for a while. But that’s OK as the volatility is now serving up some pretty exciting discounted opportunities for investing.

Economically speaking, inflation abated somewhat, with core inflation falling to 3.2% for August, its lowest point in three years. And that sets the stage for an estimated 25 basis point reduction in interest rates when the Federal Reserve meets next week, according to the latest economist polls. The rate gurus now think that we may see a total of three rate cuts before the end of the year.

Lower inflation numbers yesterday made interest rate cuts inevitable which moved the market, led by Nvidia (NVDA), which surged 8%. I intended to recommend Nvidia at a price of 100 so I will patiently watch this bellwether stock closely.

To be a good, patient and calculating investor, one needs to do two things at once: Be aware of big macro issues and trends and focus attention on micro issues. That is, closely watch specific companies and stocks, especially smaller, micro stocks offering the biggest upside and risk demanding closer attention.

Today, we recommend a fund that does just that - with a history of remarkable outperformance.

We are in the early stages of a new cycle in the market.

The environment is changing from one of high inflation and high interest rates to one of falling inflation and interest rates in a weakening economy. And it is unlikely to be a mere short-term gyration but rather the beginning of a new environment that should last for some time.

Interest rates may fall quickly or more slowly depending on whether the economy remains buoyant or slips towards recession. But rates will fall much more significantly than they have in years.

The cycle reversal will create new winners and losers. Certain interest rate-sensitive stocks have been laggards for a long time and have a lot of catching up to do. They are still cheap, high yielding, and now have momentum.

In this issue, I highlight a great monthly income stock. The yield is massive, and it provides a high income in an uncertain market. The stock also can provide great price performance when the interest rate cycle goes its way. This point in the cycle provides a great opportunity to get a high income and total return on the right side of a pronounced market shift ahead.

Led by an awful week for the Semiconductors (down 11%), the S&P 500 fell 3.62% last week, while the Dow lost 2.42%, and the Nasdaq dropped another 5.5%.

The overriding question coming into last week was whether, after the V-bottom and strong rally for much of August, the market could keep going or would it fall back into a longer bottom-building process. After last week, it’s looking like stocks need more time to set up, as big investors returned from the long weekend and sold stocks basically every day. Of course, today saw a bounce, and a strong-volume rally with fresh breakouts among potential leaders would be very bullish -- but until we see that, we have to assume the market correction that began in mid July is still ongoing. Long story short, we continue to play things relatively cautiously, sticking with small positions and a chunk of cash on the sideline as we wait for more stocks to emerge on the upside. We’ll leave our Market Monitor at a level 6.

This week’s list has a lot of familiar names that are (or are close to) offering decent entry points. Our Top Pick is a consistent grower with a big story that’s trying to emerge from a three-plus-month rest.

The predictable September selloff got underway last week, though thankfully only one holding in the Stock of the Week portfolio was a true casualty of Wall Street’s usual post-Labor Day foul mood. This week, likely the last before the Fed (finally) starts to cut interest rates, we add a company that should benefit directly from the cuts: a mortgage lender and real estate firm. It’s a new recommendation from Mike Cintolo in his Cabot Top Ten Trader newsletter, and it’s a stock that’s already having a nice year – but could have way more upside once the Fed starts to cut rates.

Details inside.

Led by an awful week for the Semiconductors (down 11%), the S&P 500 fell 3.62% last week, while the Dow lost 2.42%, and the Nasdaq dropped another 5.5%.

Led by an awful week for the Semiconductors (down 11%), the S&P 500 fell 3.62% last week, while the Dow lost 2.42%, and the Nasdaq dropped another 5.5%.

The market’s rally off the August lows was impressive, and the market’s big picture outlook remains bullish. But growth stocks never quite kicked into gear, which is why we retained a good chunk of cash on the sideline. Now we see the sellers showing up this week, which we see as a key test--if the market and growth stocks can rally from here, this could be a needed shakeout that paves the way to higher prices ... but if not, more time and consolidation may be needed in the traditionally tricky September/October time frame.

In the meantime, we’re taking things on a stock-by-stock basis, giving our names (most of which are acting fine) a chance to rest and set up--but we’re also willing to dump things that flash abnormal action. Recently one of our stocks has done that, so we’re taking our small profit and holding the cash tonight.

The broad market has traded higher for eight straight sessions, the longest run since 2021. The Nasdaq is up for nine sessions.

The S&P Small Cap Index is up in five of the last nine sessions, but the last four have been down. What the ...?!!

Big picture, this isn’t great for the broad market as we want a more broad-based rally. And in theory it’s not great for us.

But the reality is our portfolio isn’t diversified along the same lines as the small-cap index. We’re not overweight financials, energy and health care (we have little to no exposure to all three) and instead are focused on pure-play opportunities that aren’t expected to trade in lockstep with the small-cap index.

With a 29% average annual rate of return over 13 years at Fidelity, Peter Lynch certainly earned his status as a legendary investor.

Recently, Lynch revealed that indexes like the S&P 500 and Nasdaq have been propped up by a handful of high-flying tech stocks. “The truth is, we’ve been in a stealth bear market for a long while now if you don’t count those 10 or so darling mega-caps,” Lynch remarked with his trademark sarcasm.

That may soon be coming to an end.

Cannabis stocks are up 10%-20% since I encouraged you to buy them on weakness in my last update on October 31.

That’s a nice short-term gain – much better than the 5.5% S&P 500 advance over the same time.
I hope you participated.

Traders may want to book profits. The stocks are strong this morning on news that Ohio voters approved a referendum on recreational use legalization. This rally could reverse. However, cannabis stocks are still down sharply from the rescheduling rally last summer. I suggest continuing to stay long in the midst of the overall weakness since that rescheduling news rally last summer.

What a difference a week can make. Just one week ago, the market was reeling. The S&P 500 concluded the third straight month of declines after falling into correction territory a few days earlier. But then stocks turned around and had the best week of the year with the S&P 500 rallying nearly 6% for the week.

The market officially entered a “correction” last week when the S&P fell 10% from the 52-week high on a closing basis. Now, it’s largely up to the Fed to determine where the market goes next.

The Fed meets on Wednesday and will decide on the Fed Funds rate. They are widely expected to leave the rate unchanged and then indicate they might raise it in the future. But the main event isn’t the Fed Funds rate. It’s the benchmark 10-year Treasury yield.

Cannabis stocks are astonishingly weak following the nomination of Rep. Mike Johnson (R-LA) as House speaker. He has always opposed cannabis legislation. So, the fear is that Secure and Fair Enforcement Regulation (SAFER) Banking Act reform (allowing banks to serve cannabis companies) cannot get out of the House. This is probably true. However, Senate leaders could put the reform in must-pass legislation, and the House may well accept it, given how many current House members have approved the bill in the past.

So far, our recommended companies have reported strong earnings but the share performances following the reports have generally been sloppy. What’s going on?

Investors, of course, are forward-looking. So, decent trailing results can take a back seat to the incremental changes in near-term prospects. As we note in our discussion about the recent and continued slide in shares of Citigroup (C), investors are assuming that the company not only has no chance of improving its earning power but are also assuming that profits will probably slide backward. Comcast (CMCSA) reported one of the strongest quarters in its history, yet the outlook is for incremental headwinds in its customer count, so the shares slid.

It’s officially a correction. The S&P 500 fell 10% below the 52-week high on a closing basis last week. Now what?

As usual, all eyes are on the Fed. The Central Bank will decide on interest rates on Wednesday. Also, this week are earnings from Apple (AAPL) and several other large companies and another jobs report on Friday. But the Fed should be the main event.

This week’s note includes our comments on earnings from 10 of our companies. The deluge continues next week.

The note also includes the monthly Catalyst Report and a summary of the November edition of the Cabot Turnaround Letter, which was published on Wednesday. We encourage you to look through the Catalyst Report. This report is a listing of all of the companies that have reported a catalyst in the past month. These catalysts include new CEOs, activist activity, spin-offs and other possible game-changers. We source many of our feature recommendations from this list. You will find it nowhere else on Wall Street.

We jumped into a half-sized position in Airbnb (ABNB) in January 2022 then filled the second half in August of last year. Since we’ve been in the position ABNB has never done well. And while I fully believe in the business model I have concerns about the stock’s potential over the next 3-6 months.

We currently own the AAPL January 17, 2025, 135 call LEAPS contract at $48.00. You must own LEAPS in order to use this strategy.

We’ve held one-third of a position in Xponential Fitness (XPOF) after having sold the first third last September for a 28% gain and the second third just last month for a 39% gain.

We need to sell more premium in WBA and MMM today. I will be selling more premium in several of our positions throughout the various Fundamentals portfolios, including a few brand-new positions in our Growth/Value and Buffett portfolios.

I’ve decided to lock in my second profitable trade for the week. With 28 days left until expiration, I want to take off our July IWM iron condor for a profit.

The short-term measures we spoke about last week when we sent our SPY bear call spread out have subsided a bit. As a result, I want to lock in our SPY bear call spread that we placed just seven days ago for a nice profit.

PFE rallied over the past expiration cycle and as a result, our June 16, 2023, 40 calls were “called” away last week. We made 4.4% on the income trade. Per our Income Wheel guidelines, we will remain mechanical and sell puts in PFE today.

Today, a whopping eight Profit Booster positions will expire. Most are “slam-dunk,” full-profit trades, while others will go down to the wire.

The big takeaway, before we dive in, is we are going to let the situation play itself out, and come Monday/Tuesday of next week we will revisit our profits, as well as how we will manage the remaining positions.

With all of our short-term overbought measures in extreme territory I want to add a bear call spread to the mix for the August expiration cycle. While I look at overbought extremes as simply weight of evidence, it’s hard to pass up a trade when we are seeing overbought extremes coupled with several other market indicators that are screaming a short-term extreme is here.

This morning, I published my latest recommendation: Buy 2seventy bio (TSVT).

We currently own the JPM January 17, 2025, 100 call LEAPS contract at $46.20. You must own LEAPS in order to use this strategy.

I am buying back our short calls today and immediately selling more premium. Our June 16, 2023, 55 calls are essentially worthless, so let’s buy back our calls, lock in some profits and immediately sell more call premium.

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.