Not too much to report this week as we simply allow our August positions to erode in value, which as options premium sellers is a good thing. We enter earnings season this week, so I fully expect to add several positions to the portfolio over the coming weeks. We currently have six open position with the intent of getting up between eight and 10.

This month we’re digging into an emerging software star that specializes in helping brands communicate with consumers like you and me.

The details behind the technology are a bit technical. But if you’ve noticed an uptick in personalized emails and text messages letting you know it’s a good night to get takeout, or that those shoes you’ve been pining for are back in stock, you get the picture. Enjoy!

Ahead of the long holiday weekend the market had yet another good week. The S&P 500 gained 1.75%, the Dow rallied 1.5%, and the Nasdaq rose another 1.9%.

This week in an attempt to diversify the portfolio we are adding an energy play.

Thank you for subscribing to the Cabot Value Investor. We hope you enjoy reading the July 2023 issue.

Almost like an annual rite of passage, major banks reported their Federal Reserve stress test results last week. All major banks passed, in that their capital levels were in excess of the minimum requirements under the Doomsday Scenario conditions outlined in the test assumptions. We’re not the biggest fans of these tests, for reasons outlined in our monthly letter.

Citigroup remains a riskier bank relative to other majors, but also has a higher return-potential share valuation, plus a 4.5% dividend yield to reward patient investors.

The major indexes all closed last week near their highs, which is one big factor keeping the top-down evidence very bullish; nothing has changed with our big picture positive thoughts. That said, right now, we don’t think the situation is as strong as the indexes suggest—just looking at a variety of names, it’s clear many are consolidating even as the S&P and Nasdaq tested new high ground late last week. Again, we’re not saying that’s a big bugaboo, but right now, we continue to think being more discerning when looking for entry points makes sense, as does pruning some laggards if you have them. We’ll keep our Market Monitor at a level 7.

This week’s list has something for everyone, with a decent amount of cyclical exposure but also some true blue growth names as well. Our Top Pick is helping to lead a new group move in metal stocks in general (and copper in particular).

Another interest rate hike and negative second-quarter earnings growth have done little to slow the bull market rally or investor confidence, so this week we add a “Bull Market Stock” to take advantage of the strength. It’s a term coined by our Mike Cintolo, so naturally, today we add Mike’s favorite Bull Market Stock, one he recently recommended to his Cabot Top Ten Trader audience, a company that benefits directly anytime there’s a bull market and the big institutions are buying stocks hand over fist.

Over the past several weeks I’ve heard the phrase “the animal spirits have returned” at least six or seven times. Okay, I’ll give you one or two, but seven?

The overall market ends the month with another nice return. The S&P 500, the Nasdaq 100, and the Dow Jones were up 3.0%, 3.8% and 3.1%, respectively, in July. It’s been a tremendous run and one we should be excited about for a variety of reasons. Since mid-March the S&P 500 has gained 19.6% and now sits just 5.0% below its all-time high. To put things in perspective we are looking at one the best years over the past two decades … and one that is currently outperforming 2021 (solid green line).

Not too much to report this week as we simply allow our August positions to erode in value, which as options premium sellers is a good thing. We enter earnings season this week, so I fully expect to add several positions to the portfolio over the coming weeks. We currently have six open position with the intent of getting up between eight and 10.

So far, so good this earnings season.

We’ve had three successful one-day trades … 8.0% in JPM, 6.4% in IBM and more recently 5.4% in V.

Earnings announcements continue this week with a long list of more well-known blue-chip stocks due to announce. As I stated on our call last Friday, I hope to make at least two trades this week. During each earnings cycle we aim to make somewhere between 8 to 12 trades and given the opportunities ahead I don’t see any reason why we wouldn’t fall within our typical range.

As earnings season approaches the midway point, and following the Federal Reserve’s announcement of a 25-basis point interest rate hike last week, the market continued its ascent. For the week the S&P 500 gained 1%, the Dow rose by 0.65% and the Nasdaq added 2%.

As earnings season approaches the midway point, and following the Federal Reserve’s announcement of a 25-basis point interest rate hike last week, the market continued its ascent. For the week the S&P 500 gained 1%, the Dow rose by 0.65% and the Nasdaq added 2%.

The big-picture outlook with the market hasn’t changed, with all of our key market timing indicators bullish, many studies pointing to higher prices down the road and leaders--even those that have taken hits--showing little abnormal action. That said, near-term, the odds are growing we may see more choppy trading, if not a pullback of some sort, so we’re not pushing the envelope here and are ditching names that crack. Earlier this week, that meant selling one position, and today, we’re selling another, leaving us with 28% in cash.

To be clear, the odds still favor the next big move being up, so we’re aiming to put some money to work in new leadership that emerges on earnings, or current leadership that pulls in to support. For now, though, we’ll hold the cash and see how earnings season progresses.

Elsewhere in tonight’s issue, we go over a few new ideas, with the biggest write-up being what could be the #1 AI platform play (not picks and shovels, but actual platform) out there. It’s on our watch list.

Just when it looked like stocks might be rounding a corner, sellers have returned in force and pushed the major indexes into bear market territory. While this was bad for Wall Street, gold finally got some much-needed relief as “risk-off” is clearly back with a vengeance.

Last week, we discussed the “golden opportunity” for bullion in the wake of investors’ cratering confidence in the economic outlook. Gold was at first slow to respond to the rush to the exits in the equity market. But gold’s latest refusal to fall under the $1,800 an ounce level showed that hedging demand has replaced interest in bargain hunting for stocks.

This week’s Friday Update includes comments on our companies. There were no ratings changes or earnings reports.

While the market began to show some encouraging signs later in May and into early June, the past week and a half has been a mess. The S&P 600 Small Cap Index slipped back to its May low near 1139 on Monday and was holding OK there, until today.

Legendary investor J.P. Morgan was often asked what the stock market would do. “It will fluctuate,” replied the taciturn Morgan.

The psychology of the markets can be puzzling. On Wednesday, the Federal Reserve, America’s Central Bank, raised its benchmark interest rates 75 basis points, the most since 1994. And the market liked it because it was way overdue and will hopefully help stem inflationary pressures in the economy. Will it slow growth, housing sales, consumer spending, and raise the carrying cost of U.S. debt? Yes, of course.

It’s happened. The market’s flirtation with the bear market precipice is over. It’s now a full-blown tawdry affair. The S&P 500 officially crossed into a bear market at Monday’s close (down 20% or more from the high on a closing basis).

That means the bull market that began in March of 2020 has ended after 2 years and 3 months. The culprit is inflation, and the Fed’s likely reaction to it. It had been hoped that inflation was peaking and would recede all by itself without the Fed having to be as aggressive as feared. But those hopes were dashed when May inflation came in at a worse-than-expected 8.6%, the highest yet and the worst in more than forty years.

The bull market lasted from March 2020 to June 13, 2022.


But now, we are officially in a bear market.

After the sharp selloff yesterday, the S&P 500 officially fell into bear market territory, down 20% or more from the high on a closing basis.
That means the bull market that began in March of 2020 has officially ended. The previous bull market lasted 11 years. This one lasted just under two years and three months. The culprit is inflation.

The speed and magnitude of changes in securities prices in the past 5½ months has been breathtaking. A quick recap: S&P500 down 20%, Nasdaq Composite down 31%, dozens of former mega-cap, hyper-growth tech stocks down 75%, investment-grade corporate bond prices down 16%, crude oil up 62% and the U.S. dollar index up 9%.

The Federal Reserve will meet on June 15, where it is expected they will raise interest rates by half of a percentage point for a consecutive time.

Rate hikes historically are seen as a way to fight inflation, as May consumer prices rose 8.6% y/y. This number was slightly higher than expected, resulting in price declines across global markets.

Last Friday the Goodyear Tire (GT) December 23 call that we sold in late November for $1.17 expired worthless, leaving us with a stock position, and without a new call sale.

Aluminum prices have risen almost 8% in the past week as the global supply situation continues to tighten.

In the past 30 days, 20 analysts have raised their EPS targets on this tech stock.

Aspen Aerogels (ASPN) triggered our sell-stop. Let’s take our profits and sell today.

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%).

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.