Despite a couple concerning days to start the week, the bulls took control on Thursday and Friday as tech titan Nvidia’s (NVDA) earnings blowout triggered a “risk-on” bull run.

Before we jump into this week’s covered call idea, I wanted to address our May covered calls, five of which expired for full profits, and others that we need to adjust today.

Stocks have exceeded expectations so far this year. The S&P has rallied 20% from the October bottom and is up over 9% YTD. But there is a plethora of issues in the way of a further rally.

Even if we get past this debt ceiling issue without consequence, there’s inflation and the Fed. There’s also an increasing possibility of a recession later this year or early next year. The market rarely performs well ahead of a recession. A bear market rally should be about out of gas. And it’s difficult to see how stocks can soar into the next bull market until there is more clarity on these issues.

It still makes sense at this point to only buy the defensive stocks that are below the targeted price as well as sell covered calls for income when a stock gets near the top of the recent range.

In this issue, I highlight a covered call in a solid defensive stock that has recently rallied near the high point of the recent range. It’s a terrific way to get a high level of current income at a time when the market isn’t giving much else.

It’s still a narrow rally at this point, but we are seeing more names begin to pop higher, whether on earnings or some other news, with some shakeouts-and-recoveries, some earnings gaps that see immediate follow-through and more names setting up. (We don’t hate the selloff in defensive stocks, either.) It’s not definitive yet, but we will nudge the Market Monitor up to a level 5 and see how it goes.

Growth names make another good showing this week, with a variety of sectors (outside of retail, which has been rough) represented. Our Top Pick is a big-cap chip name that has stormed back after a spring correction.

Stocks had a good week, but dark debt-ceiling clouds are gathering. The closer we get to the early-June deadline without a deal, the more likely we are to see some selling, at least if 2011 is any guide. To prepare for such a scenario, today we add a bit of safety in the form of a master limited partnership (MLP)-adjacent play on America’s infrastructure boom. It’s a recommendation from Cabot Income Advisor Chief Analyst Tom Hutchinson, and it’s hitting new 2023 highs as I write this.

Details inside.

As we move past the May 19, 2023 expiration cycle, I want to add an iron condor and potentially two new vertical spreads, a bear call spread and a bull put spread, for the July expiration cycle. An iron condor will be the initial priority early this week as we dip below 60 days to expiration for the July 21 expiration cycle. My hope is that by week’s end we will have, at minimum, two new trades for the July expiration cycle, if not three.

At the May 19, 2023 expiration cycle we were able to lock in 10.8% in Wells Fargo (WFC). Our total return since initiating the Income Trader service just under one year ago stands at 90.8%.


My goal this week is to start selling puts in WFC and potentially introduce one or two new positions by sticking with a similar strategy of selling puts. Otherwise, we will simply allow time decay to work its magic as we move closer to the June 16, 2023 expiration cycle.

Our focus this week will be on Lowe’s (LOW), Nvidia (NVDA) and Costco (COST).


We had another successful trade last week, albeit a small one, a one-day 4.2% gain in Walmart (WMT). In total we’ve placed seven trades this earnings season, with a cumulative loss of -6.7%. With one week left on the earnings calendar, we have two to three more opportunities to bring our near earnings cycle return back to breakeven for this cycle or possibly into positive territory.



Our overall return is 38.8% – as I stated last week, certainly nothing to write home about, but also no complaints as we thankfully sit in positive territory during what has been an incredibly challenging market for all participants over the past year.

Not to repeat the intro from the previous week, but mega-cap tech again led the charge higher last week as the Nasdaq gained 3.38%, while the S&P 500 rose 1.55% and the Dow added a modest 0.32%.

Not to repeat the intro from the previous week, but mega-cap tech again led the charge higher last week as the Nasdaq gained 3.38%, while the S&P 500 rose 1.55% and the Dow added a modest 0.32%.

We continue to keep things simple, and when you do that, you see that the overall market remains mixed (strong big-cap indexes, weak broad market, etc.) and individual stocks are extremely tricky ... though there remain many setups and it’s not hard to fill up our watch list. Still, we remain cautious overall, holding lots of cash and a few small positions, while waiting patiently for the next big move to start. We are encouraged by the action of the past two days, but it’s far too soon to tell if it’s the real McCoy.

In the Model Portfolio, we’ve sold two small positions since the last issue, though we’re adding one new one tonight (a familiar name that we think is finally ready to perk up). We’ll remain flexible going ahead, willing to jump in or stay mostly on the sideline (68% cash) depending what comes.

Elsewhere in tonight’s issue, we write about a bunch of new ideas, a sector that’s reasserting itself after a two-month rest and remind you to think big -- yes, right now, the news is bad and the market is tedious, but when things get going, there should be big profits to be had.

Explorer stocks were steady or slightly down this week but don’t get discouraged. It is likely that Fed interest rate hikes have ended and, combined with a debt ceiling deal, could ignite a rally. Next week I will give an update on our three Explorer ETF positions.

The unemployment rate for Chinese people ages 16 to 24 rose to a record of 20.4% last month. The rate of youth unemployment in China has consistently been two or three times higher than the general population. Not a good sign.

The market is down again today, though we do see many stocks and some growth funds putting up a fight. As of 1:30 ET, the Dow is down 333 points and the Nasdaq is down 82 points, though growth funds are up in the 1% to 4% range.

It looked grim for a while there. And we’re certainly not out of the woods yet. But hope has stopped the market decline, at least for now.



The broader S&P 500 index closed earlier this week at a YTD low, down over 16% for the year and over 17% from the high. It is dangerously close to the 20% bear market level which would officially end the bull market that started in March of 2020. That would be an important psychological level that would likely prompt more selling.

It’s not a surprise for those following the market lately: it’s a bear market in Greentech. The past week, only 5% of the Greentech universe is trading higher and every subsector – water, wind, solar and nuclear – are bearish too.

The stock market’s enduring slide must be driven by something – the S&P500 rarely (but occasionally) falls 16% in four months for “no reason.” No doubt the long list of issues led by inflation, war in Europe, the end of cheap and easy money, the cut-off of generous stimulus checks and a possible recession feature large.

ENS is the GoDaddy of Defi. In this week’s market update we will highlight this lesser-known investment opportunity.

We include comments on earnings from 12 companies, summarize the podcast, include The Catalyst Report and summarize the May edition of the Cabot Turnaround Letter.

The Federal Reserve, America’s central bank, raised its benchmark rate a half percentage point yesterday as assets that investors perceive as safer were among those to rally. While macro issues such as inflation and interest rates are certainly important, in the end it will be company performance relative to expectations that will be decisive.

Even if inflation may be peaking at levels last seen four decades ago, the key question is whether these levels are transitory or sticky and likely to come back to earth slower than many imagine.

To most people it’s May the fourth be with you day, and tomorrow is Cinco De Mayo. But to the market it’s Fed day. And that’s all that matters.
The Fed meets today and is widely expected to raise the Fed Funds rate by 0.50%. That would be the largest single-meeting rate hike in more than twenty years. It’s necessary because the Central Bank is a million miles behind the curve in countering this high and persistent inflation, currently running at more than 8%.

This market distinctly turned ugly again. The S&P 500 and the Nasdaq closed at year-to-date lows on Friday.

It was hoped that earnings could save the floundering market. But it isn’t happening. Inflation and slowing growth are creating a pall over everything. The Fed seems determined to make up for lost time and aggressively hike interest rates. Stocks can’t get much traction as investors look ahead to more inflation, rising interest rates and a weaker economy.

As I think about the market, I’m struck by how negative sentiment is. The U.S. Sentiment Bull-Bear spread is at -43%. Typically, when it is this negative, forward returns look quite attractive.

Investors always like a safe place to salt away some cash, particularly during a period of market volatility.

Traditionally, that’s been money market funds, or as part of an asset allocation strategy, many have turned to short-term investment-grade bonds.



Those more typical fixed-income funds often play a role as a way to dampen the volatility of equities, and provide some stability during times of high volatility.

Gold prices took a dive in late April, falling 6% after briefly reclaiming the $2,000 an ounce level earlier in the month. While disappointing, the yellow metal still finished the first four months of this year with a net gain of 6%.

Of technical significance, gold remains above its widely-watched 200-day moving average, which tells us that despite the recent weakness, the bulls still have control over the intermediate-term trend.

Rivian (RIVN) reported its first quarter as a public company yesterday. Adjusted EBITDA loss was -$727 million, slightly below consensus of -$690 million, while revenue of $1 million was slightly above consensus. The company ended Q3 with $5.2 billion, but we need to add $13.5 billion from the IPO to get a more accurate balance. Minus cash burn since the close of Q3 Rivian probably has around $16 billion now.

This home building retailer beat analysts’ earnings estimates by $0.52 last quarter, and 33 analysts have recently increased their EPS forecasts for the company.

Tomorrow is the expiration of our December covered calls, and I’m not going to sugar coat it—this month has not been kind to our stocks/trades. As @StockCats sarcastically said on Twitter, “It’s a stock picker’s market as long as you only pick the 7 stocks holding up the indexes.”

We are moving shares of GCP Applied Technologies (GCP) to a Sell.

Broad market volatility spilled over into some of the precious and industrial metal markets this week, including copper. The red metal was unfortunately a victim of Wednesday’s Fed-related whipsaw, which knocked us out of our conservative trading position in our favorite copper-tracking ETF, the United States Copper Index Fund (CPER).

The major indexes are mixed today, but that’s mostly as investors hide in defensive names while again pouring out of growth stocks. As of 11:45 am EST, the Dow is up 145 points, but the Nasdaq is down another 218 points (1.4%).

While these shares are trading at a discount, some company insiders have been adding to their holdings. The company is expected to grow earnings by more than 22% next year.

I’ve been in the business of writing and publishing investment advice for 35 years and over that time I’ve become a dyed-in-the wool, card-carrying optimist about the market.

While these shares are trading at a discount, some company insiders have been adding to their holdings. The company is expected to grow earnings by more than 22% next year.

It’s another ugly day out there as the market remains in wait-and-hear mode pending commentary from Fed Chairman Jerome Powell, who will update us on his latest thinking tomorrow. While investors seem to be finding a certain level of comfort with data showing vaccines and treatments are effective against the Omicron variant, the wholesale inflation number from today and prospect of rate hikes is casting a bit of a pall over the market.

This preferred stock is issued by a telecom company whose earnings are expected to grow at an annual rate of more than 85% over the next five years.

Shares of Arena (ARNA) are up over 80% today to around 92 on news that Pfizer (PFE) is seeking to acquire the company for $6.7 billion in cash. The implied takeout price is 100 a share.

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.