You are receiving the typical Monday morning update today as the Cabot office will be closed on Monday, and then the stock market is closed on Tuesday. Have a great Fourth of July weekend!

You are receiving the typical Monday morning update today as the Cabot office will be closed on Monday, and then the stock market is closed on Tuesday. Have a great Fourth of July weekend!

It’s not a perfect picture, but the vast majority of evidence out there remains bullish, and that’s especially true for the vital leading index (Nasdaq) and leading growth stocks, which have rested normally after beefy, big-volume advances. We’re putting a bit more money to work today by averaging up in a current name, and will ideally put more to work when either (a) a couple of our current holdings overcome resistance (to average up), and/or (b) when some names on our watch list consolidate a bit longer.

In tonight’s issue, we talk about some of the confusion we’re hearing out there about sentiment (not a worry at all in our book), talk about one non-growth sector that reminds us a lot of oil stocks a couple of years ago (before that big run) and go in-depth on some new ideas and, of course, all our holdings.

Fed Chairman Jerome Powell’s continued warnings of future rate hikes weighed on markets as did the Biden Administration’s suggestion that there should be new restrictions on selling advanced chips to China. Despite this, chip stocks such as Nvidia (NDVA) and the PHLX Semiconductor index were down by less than 1%.

Artificial intelligence (AI) calculations largely take place in data centers full of servers with graphics processing units (GPU)s from Nvidia and its competitors. It is estimated that 20% to 25% of the company’s revenue from Nvidia’s AI chips have been coming from China. To avoid further upsetting Beijing, no action is expected until after Treasury Secretary Janet Yellen’s visit to China in July. Washington is also preparing legislation to screen China-bound investments by U.S. companies. AI, quantum computing, biotechnology and large-capacity batteries are at the top of the list.

There is a potentially nice trading opportunity setting up in cannabis near-term.

When Washington, D.C. lawmakers return from their July 4th break on July 10, they are likely to get down to serious business on the SAFE Banking Act.

This proposed law would boost investor interest in the space because it would allow banks to work with cannabis companies. This would help cannabis companies in several ways.

Thank you for subscribing to the Cabot Turnaround Letter. We hope you enjoy reading the July 2023 issue.

While much of our emphasis is on mid-cap and large-cap turnarounds, there are often attractive turnarounds in the small-cap segment of the market. Companies in this group, with market values generally below $1 billion, can offer worthwhile investment opportunities. This month, we are focusing our research exclusively on small-cap turnarounds and discuss eight names with interesting potential.

Our feature recommendation this month is L. B. Foster Company (FSTR), a small-cap manufacturing and distribution company focused on the railroad, precast concrete structures and customized steel fabrication, coatings and measurement industries. After years of difficulties, a diligent and impressive turnaround effort is underway and starting to show progress, even as investors overly discount its prospects.

The market’s steady advance came to a halt last week, though given the recent run higher, the losses felt “normal.” For the week the S&P 500 fell 1.4%, the Dow lost 1.67%, and the Nasdaq declined by 1.45%.

Few stocks have participated in the YTD rally. In fact, just ten large-cap technology stocks accounted for just about all the market gains this year. The market has so far shunned defense and favored growth. But that situation is unlikely to persist.

There is still lots of risk. Inflation could be stickier, and the Fed could be more hawkish than currently anticipated. Even if a recession never happens, it’s reasonable to expect that the economy will slow in the second half of the year. And overall market earnings have already contracted for the last two quarters.

The relative performance of defensive stocks historically thrives in a slowing economy. If the rally broadens in such an environment, it will need participation from the defensive sectors. If the market pulls back, defense should be the best place to be.

I highlight a new buy-recommended stock in the issue. It is a legendary income stock that pays dividends on a monthly basis. It’s also near the lowest price level of the past two years.

The much-anticipated market dip finally arrived last week, and so far, when you look at the leadership of this market—the Nasdaq and leading individual stocks—the action has been completely normal, and in fact, seems to be producing some higher-odds entry points as names dip toward support. Once again, though, we need to keep a close eye on the broad market—the intermediate-term trend remains up, but it’s getting close to the edge, with another bad week possibly putting the broad market back in the soup. We’ll leave our Market Monitor at a level 7 today but we’re watching things closely in case weak breadth causes the selling pressures to build.

This week’s list has a growing number of pullback-related setups. Our Top Pick quacks like a new technology leader that’s pulled back reasonably after a strong rally. It’s volatile, so start small and use a loose leash.

The market has pulled back after a huge run-up, which is normal action and likely not a product of renewed Fed fears that didn’t exist a week ago. These types of pullbacks in bull markets, like the new one we’ve just entered, are buying opportunities. And so today, we add a high-profile growth stock that is already up more than 80% year to date but may be just scratching the surface of its artificial intelligence potential, which could open up new revenue streams. It’s a new recommendation from Tyler Laundon in Cabot Early Opportunities.

The eight-week rally in the market-leading Nasdaq 100 (QQQ) ended last week as the tech-heavy index finally surrendered to short-term overbought conditions. Makes sense…because over that period of time QQQ saw returns of just under 15%, well over a third of the 37.9% year-to-date returns.

The pullback led us to lock in profits in our August 18, 2023 SPY 465/470 bear call spread and our July 21, 2023 IWM 196/191 – 156/151 iron condor. We locked in 10.1% and 6.2%, respectively, to bring our total returns to 159.9%. Our win ratio stands at 88.6% (31/35 winning trades) since we launched Quant Trader on June 2, 2022.

We sold put premium in PFE and (covered) call premium in GDX and KO last week. And with the market pulling back last week and out of a short-term overbought state, I intend to add even more premium to our plate. We will be adding one, if not two, positions to the mix.

Last week I stated my goal was to bring in total potential returns of roughly 10% to 12.5% per expiration cycle. By adding a few stocks/ETFs we should be able to reach that target.

There’s reason to be heartened this week, as the market and Greentech continue to improve, extending on the hints of a turnaround we discussed in our issue last week. In fact, Greentech is looking better than the broader market right now, as it sits over the 20-day and 40-day moving averages (the S&P 500 and Nasdaq Tech 100 are below their 40-day) and we’re seeing Greentech’s 40-day line start to make a turn higher.

Things are looking better. The market stopped going down. Now it’s going sideways. That’s better.

Stocks have moved above the bear market precipice as investors have apparently priced in the fact that inflation will be persistent and the Fed will have to raise rates aggressively this year. That’s a major bummer to factor in. The market appears to have absorbed that shock, at least for now.

Our weekly note usually follows the theme of “what’s on our minds.” The topics range from discussions about individual stocks to the overall market to inflation and other matters. We usually have a lot on our minds, so it’s mostly a matter of picking one.

The Undiscovered Portfolio within ETF Strategist is delivering exactly the kind of return we’d hope to see in a down market, with three of four funds showing gains as of Thursday.

As you see in the table below, even the fourth fund has only a small loss of less than 2%. That’s well ahead of recent performance in the major indexes.

Hurricane season is upon us, a time of year that normally sees increased storm activity along America’s coasts. If a prediction by a major investment bank is correct, the U.S and other major countries will also experience an “economic hurricane” at some point in the coming months.

The “hurricane” prediction made headlines last week after JPMorgan Chase (JPM) CEO Jamie Dimon used the term to describe what he sees as a precarious balancing act the Federal Reserve must perform in trying to control inflation by raising interest rates without pushing the economy into recession.

We reiterate our bullish call that the highest-quality names have likely bottomed. This thesis stems from the fundamental financial performance of the names we have been tracking. As these companies have delivered high-quality earnings reports, their positive financial results have de-risked the process of investing in these great businesses. They are worth owning today, to hold well into the future, making it a compelling time to invest in areas like cloud computing, enterprise and SME software, semiconductors, financial technology, and cryptocurrency.

This week’s Friday Update includes comments on earnings from Duluth Holdings (DLTH). Two stocks are at or near our price targets and we summarize the podcast.

Explorer positions had an up week as the S&P 500 has begun a turnaround from bear market territory and is now down “only” about 13% for the year. This means it is up around 6% since hitting its recent low on May 19 as the Fed has softened its tone and China tries to get growth going.

Electric vehicle sales are set to more than triple to just over 20 million in 2025, according to BloombergNEF. This is up from a previous estimate of 15 million.

Things have gotten a little better in the market. The situation has gone from bad to crummy.

The S&P 500 rallied from the lows to move away from the bear market precipice. The index also closed the week in positive territory for the first time in eight weeks and actually managed to eke out a very slight gain for the month of May. It’s not much. But it beats spiraling downhill.



For the first time in ages, inflation numbers were better than expected. There were also some positive numbers for the economy today. There seems to be a feeling that stocks have priced in the current negative environment for now. And there is some faint hope that inflation will recede all by itself and therefore the Fed won’t have to drive the economy into recession.

This week, there wasn’t a whole lot of news. Last week, I closed out my BBX Capital (BBX) recommendation for a profit of +172%.

Is the market improving? There are some reasons to believe it might be.
The broader S&P 500 index has come right up to the precipice of a bear market, down 20% or more from the high on a closing basis. It closed down 19% and actually crossed the 20% on an intraday basis. The market had done a similar thing twice in the last bull market but stayed above the line and went on to rally from there.

In our view, the best, quality assets bottomed last week. After months of heavy selling across a myriad of asset classes, BITO is up 10% today on heavy volume. We reiterate this ETF as a BUY and feel this is an attractive entry point to own Bitcoin.
In the coming months, we expect to be more aggressive in our portfolio allocation, gaining exposure to high-quality U.S. equities and crypto assets. The multi-month decline in prices have increased the expected return of these assets.

Although this mining company falls into the category of speculative stocks, analysts expect the company’s earnings to grow at an annual rate of 20% over the next five years.

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.

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.

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.