We made our second straight successful trade for this earnings cycle last week. We were thankful to take quick profits in Visa (V) Friday morning. All went well as V opened well within the chosen range of our iron condor and, as a result, we were able to take off the trade for a nice one-day gain of 9.9%. But remember, even though these are short-term trades, this is a long-term strategy – a strategy based on the law of large numbers and statistical probabilities.

Ahead of a potential monster week for the market, with plenty of volatility, last week was fairly quiet for the indexes. The S&P 500 gained 0.7%, and the Dow and Nasdaq were mostly unchanged.

Ahead of a potential monster week for the market, with plenty of volatility, last week was fairly quiet for the indexes. The S&P 500 gained 0.7%, and the Dow and Nasdaq were mostly unchanged.

Big picture, it’s hard to find much wrong with the market, as the primary evidence (trends of the indexes, action of leading stocks) remains clearly positive. Thus, we’re generally holding our winners and think there’s a good chance last November marked a major turning point after nearly three years of growth stock sluggishness.

That said, near-term, we’re keeping our feet on the ground and going slow on the buy side, as there’s no question stocks have had a good run and many leaders are extended. Recently, we’ve trimmed a couple of positions but, tonight, we’re averaging up on one name to fill out our stake.

Despite some weakness early in the week, the indexes bounced back in a big way, closing at new all-time highs. For the week, the S&P 500 gained 1%, the Dow added 1.07%, and the Nasdaq soared higher by 2%.

I believe the good news will prevail in 2024. But you never know. Forget about trying to predict the direction of the overall market. However, certain aspects of the current environment and established trends are much more bankable.

For example, it is highly likely that interest rates have peaked. Sure, rates could bounce higher than they are now. But that 5% peak level on the 10-year Treasury is unlikely to be eclipsed, at least in this cycle. Artificial intelligence is here to stay. Businesses must spend on it not only for competitive advantage but as a matter of survival. The new technology will continue to be a strong growth catalyst for technology stocks.

In this issue, I highlight a fantastic dividend stock whose long record of strong performance has been interrupted these last two years because of rising interest rates. It’s also a company that focuses on technology and will surely benefit from the proliferation of AI in the years ahead. The timing for this stock should be outstanding.

The vast majority of our work is based on the trends of the major indexes and the action of leading stocks, and on those two fronts, things look very good; we’ve even seen the broad market perk up after a tough stretch, too, which helps the cause. About the only thing to worry about here is that ... there’s not much to worry about, and that many leading stocks are showing some near-term exhaustion patterns. Big picture, we’re moving our Market Monitor back to a level 8, but you should still keep your feet on the ground, looking for decent entry points in strong stocks.

This week’s list has a lot of stocks that not only have excellent overall charts but have either consolidated calmly for the past few weeks—or have shown outstanding buying volume in recent days. Our Top Pick is one of the latter, gapping up to new highs last week on earnings.

After a sluggish start to the year, stocks have broken to new highs, with not even diminished expectations of Fed rate cuts able to slow them. Is it the next leg up in this still-nascent bull market? Perhaps. But in case there’s some earnings season turbulence ahead, today we add a low-risk value stock that’s been a favorite of Cabot Value Investor Chief Analyst Bruce Kaser for quite some time.

Details inside.

We locked in three more profitable trades at expiration last Friday, bringing our total positive trades total for the January 19, 2024 expiration cycle to five. Our total returns so far in January are 10.86% with the potential for a return in PFE that would certainly add a few percentage points to our overall returns for the month.

As stated above, we have one position, PFE, that is due to expire this week. As it stands, our position is currently sitting at-the-money, but it doesn’t really matter where it closes at expiration this Friday as we will continue to follow the guidelines for our income wheel strategy.

As we discussed on our subscriber-only call last week, this begins a four- to five-week period of major earnings announcements. More importantly, this week offers us several potential opportunities to trade a few earnings announcements.

Per our discussion last Friday, Visa (V), IBM (IBM) and American Express (AXP) offer the best opportunities with United Rentals (URI) not far behind. Surprisingly, Microsoft (MSFT) and Texas Instruments (TXN) didn’t offer any decent opportunities, or at least that was the case when we took a look Friday. But who knows, maybe implied volatility will kick up a bit higher before earnings and offer some better opportunities to sell premium.

We added an iron condor last week and hope to add a few more trades this week, including a bear call spread and a bull put spread. I’ll be focusing on sector ETFs and individual stocks as the major indices continue to see low levels of volatility.

We’ve seen an incredible rally since October 27, 2023. SPY was trading for roughly 411 at the time and at the close of the January 19, 2024, expiration cycle the market-leading ETF was trading for 482.43.

Despite some weakness early in the week, the indexes bounced back in a big way, closing at new all-time highs. For the week the S&P 500 gained 1%, the Dow added 1.07%, and the Nasdaq soared higher by 2%.

The big news this week is that OPEC+, including Russia, made the decision on Sunday to cut oil production by 1.16MM barrels per day from May through the end of the year. It appears that OPEC+ wants to keep oil in the $80-$90/barrel range.

Things are looking up in the market. The S&P 500 soared 3.5% last week and is now more than 7% higher YTD.

Investors love that the banking issues have had the benefit of tempering the Fed with no apparent offsetting crisis, so far. The expected timeline for the Fed to stop raising rates has moved way up, to one more rate hike from what could have been a hiking cycle that lasted the rest of the year.

This week, we comment on earnings from Walgreens Boots Alliance (WBA).


We also include the Catalyst Report and a summary of the April 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.

WHAT TO DO NOW: The market remains stuck in the middle—on one hand, growth stocks and big-cap indexes are holding up very well considering the recent banking and economic fears, but on the other, the broad market is still weak, financial stocks are a mess and a couple of our key indicators are negative. All in all, then, we’re following the market’s split personality, holding about half in cash but also holding and nibbling on some resilient growth names. Tonight, we’re going to buy a half-sized stake in Axon Enterprises (AXON), though that will still leave us with 48% on the sideline.

Small-cap stocks have underperformed their larger-cap peers by a wide margin since Jerome Powell’s Congressional Testimony just over three weeks ago.


Part of that is because of the hawkish tone he struck. But mostly it’s because of the fallout of the SVB debacle, concerns over a 2023 financial crisis and what the spillover effects could be on the broader economy.

BYD (BYDDY) reported great earnings, and Novo Nordisk (NVO) got a lift from the World Health organization this past week – but the big news is that Alibaba (BABA) surprised markets by announcing on Tuesday a plan to split the $220 billion goliath into six standalone units.

There’s a new worry in the market – recession. Just when the Fed is finally chilling out, investors are moving on to the next bummer. The market still stinks, just for different reasons.


Until a couple of weeks ago the main concern was a more hawkish Fed. But the banking situation has mellowed the Fed, and the Central Bank just indicated it is nearly done hiking rates. It’s a relief on the Fed front but the economy could be a problem now.

I’ve never liked gambling. I went to Las Vegas once with friends and had a blast. But that was because the weather was beautiful, and we sat by the pool during the days and then had some good nights out. Some of my friends loved to play blackjack. I enjoyed it for entertainment value, but I was only interested in playing at tables with low minimums. Why? Because I know that the house always wins! (Unless you are Edward Thorp, the famous card counter.)

Last Thursday evening, I was a guest at a friend’s regular poker game. It seemed friendly enough – the regulars were average players (like myself), pleasant to spend time with (no jerks), and the evening included a tasty dinner. Also, favorably to me as the newbie, the stakes were modest.

The games were straightforward: 5-card draw, 7-card stud high-low, while a few others included a small field of common cards similar to Texas Hold’em. Betting was reasonable, with limits on both the size and number of raises. So far, so good.

This week, amidst the fireworks in banks, the Fed and more market volatility, there were no earnings reports and we had no changes in ratings on our recommended stocks.


Next Wednesday, we publish the April edition of the Cabot Turnaround Letter. We’ll tip our hand on the first article – which will be on possible bargains in the banking industry.

Yesterday the FOMC decided to move ahead with another 25bps hike, bringing its federal funds target rate to a range of 4.75% to 5%. The statement was missing the phrase, “...ongoing increases in rates would be appropriate,” which was present in the eight previous statements, suggesting the Fed may be done hiking soon.

Fallout from the bank failures and the Fed meeting tomorrow make this a big week in the market.

Let’s deal with the banks first. After the two bank failures this week and the buyout of ailing Credit Suisse (CS) over the weekend, the spotlight is on potentially vulnerable small regional banks. Although Silicon Valley Bank and Credit Suisse are very different banks with different problems, the common denominator is the markets, particularly the bond market.

I will be exiting the Mastercard (MA) trade today. I will discuss the trade in greater detail in our subscriber-exclusive webinar at noon ET tomorrow, January 27.

As discussed in our weekly issue and on our weekly call, I will be taking a position in Mastercard (MA) today.

The market has linked together a few decent days, helped by a better-than-feared jobs report last week (showed wage gains moderating), reopening in China (good for global growth) and greater recognition that higher-growth stocks reflect A LOT of bad news.

We allowed our January 20, 2023, 60 puts to expire worthless. As a result, per our Income Wheel guidelines, we will remain mechanical and sell more puts in KO today.

We allowed our January 20, 2023 190 call to expire worthless last Friday. As a result, I want to sell more premium in CVX 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.

As part of the Income Wheel approach, we allowed our Pfizer (PFE) puts to expire in the money at expiration last week. As a result, we were issued shares at our chosen put strike of 49.

We currently own the TIP January 19, 2024, 100 call LEAPS contract at $17.10. You must own LEAPS in order to use this strategy.

We currently own the DBC January 19, 2024, 22 call LEAPS contract at $10.50. You must own LEAPS in order to use this strategy.

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.