I’m going to keep it short this week as it has been a fairly quiet week for the Income Trader service. We added some calls on PFE, but other than that, we are well positioned into the September 23, 2022 expiration cycle. I plan on adding a minimum of two additional short-term positions next week and as I spoke about on our call last week I intend on taking some of the premium we’ve collected and create a black swan trade just in case we see a swift drawdown as we move into the latter part of 2022. It never hurts to have a little insurance just in case and it would only cost us a few percentage points. I’ll be discussing the details of the trade in the next issue.

Most people in the market (and in life) think of a lot of things as black and white, good or bad, bull or bear … and, frankly, for the market anyway, that’s often a good approach. We’re trend followers, after all, and we’ve designed our indicators to mostly be green or red, telling us whether stocks are headed up or down. It’s often best to play things in a decisive manner.

Although uncertainty in the market is growing, there are still strong income stocks out there. But we must be careful to find the right ones. A good stock needs to be resilient in a continuing recession, yet able to thrive amidst high inflation, or both, or neither. In this issue, I highlight such a rare bird.


The portfolio is also eliminating a cyclical position and adding a more defensive one. At the same time, we are seizing upon recent strong performance in another stock and selling a call to lock in a high income in this uncertain market.

Today we are adding a recent earnings season winner, though because of the weakness in the market the last two trading days, we are playing it somewhat defensively.

With short-covering activity no longer a factor, gold remains in a tenuous position on a short-term basis. A strengthening 10-year bond yield and a robust dollar are further headwinds for the metal.

Lithium, meanwhile, is back in a commanding lead among the key industrial metals—thanks in part to the newly passed Inflation Reduction Act law.



In the trading portfolio, no new positions are recommended for now as the broad metals market is unsettled.

Stocks finally had a bad week on the heels of a two-month, off-the-bottom rally that hadn’t relented since mid-June. One bad week doesn’t mean we’re destined to return to the kind of selling we saw in the first half of 2022. But the retreat was sharp enough to sell three of our weakest performers and add some safety in the form of another dividend stock. But the newest addition to the portfolio, courtesy of Tom Hutchinson, isn’t some stodgy utility company. It’s a fast-growing technology company whose stock is starting to regain traction with investors.

Details inside.

As we’ve been writing in recent weeks, the evidence was clearly improving in a step-by-step manner, but few stocks were hitting new highs and the market’s longer-term trend remained down. Thus, it’s not a shock that, after a few good weeks, the sellers are beginning to step up. The question is whether the recent rally has run its course, and we’ll just take it as it comes: So far, the dip has been acceptable, but what happens from here will be key, with continued slippage likely having us pare back (possibly quickly).



This week’s list has a broad mix of names, some of which would look good on modest weakness. Our Top Pick is a potential new leader in the chip space after it gapped up huge on earnings last week.

The market continues to hover around near-term highs, while in a short-term overbought state. Moreover, the 200-day moving average is acting as an area of strong overhead resistance and we have a large gap that has yet to close from August 10. When combined with a VIX that is hitting a strong area of support, well, it looks like we could see a bit of weakness ahead, at least over the short term.

As esteemed analyst Jason Goepfert pointed out this week, we have to remember “the S&P 500 has more assets benchmarked against than any other global index. And the 200-day moving average is the most consistently used indicator among those who look at price charts,” especially for longer-term trends.

We had the good fortune to lock in two winning trades this past week in Home Depot (HD) and Walmart (WMT). Our win ratio now stands at 50%, well below the expected rate of 80% to 85%. That being said, we are just under break-even for the earnings cycle with the understanding that the law of large numbers will come to fruition as we continue to place more and more statistically-based trades.

As I’ve said numerous times and will again as a reminder during the upcoming webinar, my first three trades when I started using this approach back in 2017 were losing trades. In fact, they were big losers. I’m talking -34%, -40% and -60%. Yet, 117 trades later, when all was said and done, the cumulative total of the strategy was 932.2%.


Remember, the law of large numbers is defined by increasing the sample size, in our case the number of trades, and so far we only have eight trades under our belt. As I’ve stated over and over, just because a coin flip has a 50% probability of success, it doesn’t mean that for every 10 flips five are going to be heads and five tails.

As I spoke about in our monthly subscriber-exclusive call, the ongoing market rally helped us to have a wonderful expiration cycle. We were able to lock in 11.4% in total premium and our BITO position is now above break-even. We still have a small loss in GDX, but the premium we’ve managed to bring in over the past two expiration cycles far outweighs the miniscule decline in GDX.

I want to ladder our trades so that we are bringing in a steady stream of premium every week to two weeks. So far, so good.



I plan to add several more new positions to the mix over the next week or so and buy back a few of our put positions (KO, WFC), lock in profit and sell even more premium in the same underlying stocks.

Explorer stocks had a mixed week due to weaker market and some profit taking as SQM reported another strong quarter with earnings up 857% year-over-year. Positive second-quarter corporate earnings reports and the flattening of still-high inflation seemed to settle investor nerves and despite this week’s pullback, the S&P is up 17% from its June lows. This week we go to a big resource play on a strategic growth trend that is powered by Dr. Copper.

In the August Issue of Cabot Early Opportunities, we continue to lean into the market rally, be it bear market rally or new bull. We step up to the plate with a partial position in a biotech stock I’ve been eying, jump into a rapid-growth security software name and also a fintech company in a recovering industry. Two more conservative growth ideas are added to our Watch List and may fit the bill down the road should the market soften.
Enjoy!

The major indexes had a down day on the first trading day of the year.

This month saw several major mergers/acquisitions and changes in CEOs and at least two high-profile activist campaigns.

As we head into a new year, I would like to thank all of you for your support and wish you all both good health and profits in 2021. But today, we have a piece of unfinished business that needs to be dealt with - Alibaba (BABA).

I’m sending this week’s update out a day early because I have a window to work now with the kids somewhat entertained with Christmas presents. And it’s always nice not to load up our team with communications the day before a holiday (Cabot is closed Friday).

The New Year looks promising for dividend stocks. With prices in many growth sectors at high levels ahead of a very promising economic year, the relative performance of dividend stocks in general should be much better this year than in 2020.

With the turn of the calendar only a few days ahead, just about every investor is mapping out their market views for the coming year. Some do this formally, like Wall Street brokerage firms who publish their opinions on where the S&P 500 and interest rates will finish next year and their outlooks for all sorts of economic and financial indicators. Others will informally develop their views and expectations for the coming year.

Zweig’s research indicates that the market rallies 0.53% or 176% on an annualized basis on the day before New Year’s Day. Who knows what next year will bring, but odds are the market will finish 2020 on a high note!

The situation looks bright in 2021. Several high dividend paying stocks and sectors have had a big move higher after the vaccine announcements.

We’re mixing things up a little this week and next and going with very brief Weekly Updates.

Despite a global pandemic and an economic crash, stocks had a great year. As of yesterday’s close all three indexes are higher for the year and very near all time highs. The S&P 500 is up over 14% while the tech-laden Nasdaq is up an astounding 42% YTD.

The market is relatively flat so far this week as more traders head home for the holidays. Coming into Wednesday, most major indexes were within 1% (up or down) of where they closed last week, though many growth stocks have picked up steam.

The Cabot Undervalued Stocks Advisor has an investment horizon that is generally one to two years. As long as our companies are making fundamental progress, we’re comfortable with waiting for periods that easily extend past December 31st. However, the market doesn’t necessarily share that perspective. For many reasons, including professional investor bonus calculations, tax-related trading, window-dressing and simple year-end portfolio house-cleaning, the market’s horizon shrinks geometrically as the calendar winds down.

Selling Industrial & Technology

This communications company posted EPS of $0.27 last quarter, handily beating Wall Street’s estimates of $0.13.

Sell BGS February 19 $27.50 call at $2.40 or better

Icahn Capital just bought more of this technology company, bringing its stake to 14.5% of the outstanding shares.

This closed-end fund has a current annual dividend yield of 6.77%, paid quarterly.

The bull market is alive and well, and marijuana stocks remain among the leaders, as buyers continue to flood into this hot sector in the midst of a growing trend toward legalization.

This infrastructure company beat analysts’ EPS estimates by $0.03 last quarter, and just inked a $25 million deal to renovate a building at the Air Force Academy.

This oil company hammered Wall Street’s estimates ($0.38) last quarter. Its current annual dividend yield of 7.56%, paid monthly.

This ride-sharing and food delivery company just completed the acquisition of Postmates, Inc., making it the second in market share next to DoorDash.

This alcohol stock was just upgraded by Morgan Stanley to ‘overweight.’ The shares have a current dividend yield of 2.80%, paid semi-annually.

The top five holdings of this fund are: WEC Energy Group Inc (WEC, 1.38% of assets); Eversource Energy (ES, 1.30%); Carrier Global Corp Ordinary Shares (CARR, 1.26%); American Water Works Co Inc (AWK, 1.19%); and Motorola Solutions Inc (MSI, 1.17%). The fund has a current annual dividend yield of 2.85%, paid quarterly.

This e-commerce company was expected to lose $0.23 per share last quarter, but its EPS came in at $0.50.

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.