While the market officially remains in a downtrend, various indicators in recent weeks, combined with terrible news and sentiment, tell us the market bottom may have passed. But until we see real strength, continued caution is advised.
Today’s recommendation may be too aggressive for some readers (it’s a semiconductor company, and we all know they can be volatile) but it has a good story and chart and I think it’s worth the risk.


As for the portfolio, there are no sales, just one downgrade to Hold.


Details in the issue.

The market’s evidence continues to take steps in the right direction and, by our measures, the intermediate-term trend is now on the fence—a couple of decent days from here could produce a green light. Of course, even if we do turn up, it doesn’t mean it’ll suddenly be 1999 again, but we’re not taking anything away from the action: The market has put together a few positive steps in a row, now let’s see if it can continue in the days ahead.



This week’s list again picks up on a few names that are already testing key resistance even as the indexes are just a couple of weeks off their lows. Our Top Pick is a nuts and bolts type of firm that’s seeing a huge upmove in earnings and sports a dirt cheap valuation.

As I stated in my last update, I will be adding several more trades to our short list of open positions next week. My goal is to have a rotation of five to ten positions in both the Income Trades Portfolio and Income Wheel Portfolio.

Earnings season is finally behind us. But there are always a few interesting opportunities to be found in between earnings cycles. Plus, the downtime between cycles gives us some time to reflect on the prior earnings season and, more importantly, prepare for what is ahead.

There are a few interesting opportunities that garner a look in the week ahead, which we will discuss below. But there is no doubt that opportunities are slim as we sit in the doldrums between earnings cycles. When earnings season is in full swing we will often see 20 to 30 trade ideas per week.

On Wednesday we placed our first trade, a bear call spread in SPY at the 440/445 call strikes. My goal is to place at least two more trades, if not more, next week as we begin to build out the portfolio to hopefully five to eight positions. Of course, we’re not going to force trades. As always, we will patiently wait until a trade makes sense. That being said, with implied volatility remaining high across the board, we shouldn’t have any issues finding some underlying stocks and ETFs to wrap a few high-probability strategies around.

The market continues to be messy, but we’re going to take a partial swing at a profitable software company playing in a big, growth market – cloud services.

This company is like a smaller version of Amazon Web Services and Microsoft Azure. But without all the other parts of those much, much larger companies.



We may be a bit early. But we’ll manage that risk by taking a half position in a company that’s likely to grow above 30% for years and is very profitable.


Enjoy!

The market’s evidence has clearly improved during the past couple of weeks, so much so that our Cabot (and Growth) Tides are now on the fence, while our old Two-Second Indicator is starting to pick up on a bullish change in character for the broad market. That said, it’s close, but we haven’t seen anything definitive yet--tonight, we have no changes, but if we see some green lights, we’ll be on the horn with two or three new additions most likely.



In the meantime, we continue to hone our watch list and put together our game plan should the evidence continue to improve; we’re not going to go whole hog right away, but after six months of punishing action, we’re remaining flexible and write about a few potential fresh leaders in tonight’s issue.

As investors are broadly satisfied with the current outlook, it seems that we have arrived at the end of the beginning of the post-pandemic era. However, there remains immense uncertainly about how the middle-game will play out.



This week, we took advantage of the strong performance of some of our stocks to reduce our ratings. And, as not every stock works right out of the gates, we are moving Big Lots (BIG) from Buy to Hold as we want to rethink our outlook and valuation given its dismal recent earnings report.

This week we are adding a covered call in yet another earnings season winner that has emerged amidst the rubble of the retail sector.

During the past couple of weeks, the market has put together a handful of solid baby steps; in fact, the rally has been enough to put the intermediate trend on watch—a bit more strength from here could produce a green light. That’s all to the good, but (a) we still have to see the signal actually occur, and (b) even if it comes, there’s still plenty of overhead to chew through given the damage seen over the past few months. That’s not to throw cold water on the rally attempt—we’re nudging up our Market Monitor to a level 3 tonight, but right now, it’s best to remain defensive and to go slow on the buy side.



This week’s list is again heavy on commodity-related stocks and special situations, along with some recent earnings winners sprinkled in. Our Top Pick is a medical firm that lifted above long-time resistance following a clean FDA approval.

The market remains quite weak, and thus ripe for a major rally at any time. But until we see real strength, continued caution is advised.
And today’s recommendation fits the bill, as it has a solid dividend and the prospect of real growth as the global energy industry adjusts to a world without Russian oil.


As for the portfolio, we’re selling one laggard, which is suffering as consumers cut back on discretionary spending.

Inflation may be easing somewhat but interest rates will continue to move upward, presenting a headwind for markets. Investors are acting on bargains but in restrained ways until an uptrend develops. The Explorer’s Fanuc (FANUY) is up 10% in the last two weeks and Chilean real asset play SQM is up about 25% in the last five weeks. Today, we add another new overseas play, this time from London.

As we move into the third quarter, analysts at Goldman Sachs write that their baseline forecast is for the S&P 500 to gain 5% in the second half of the year. In their “vaccine upside” scenario, stocks rise by 14% from here; in the “virus downside” scenario, they drop 30%.

The S&P 500 soared 46% from the March bottom in about 11 weeks, the fastest such rise in history. It couldn’t keep that up forever and it was bound to falter eventually.

The S&P 500 was up 20% in the second quarter. It was the best quarter for the market in decades. That’s what the headlines say. But they are a little misleading. The market hit a recent high on June 8th and has since pulled back a little and moved sideways.

You should remain bullish and flexible. Most of the evidence remains positive, including the trends of the major indexes and action of leading growth stocks.

The big news affecting the market this week is the upward trend in coronavirus cases in some states and the resulting concern that an economic rebound will be curbed sooner than hoped.

While there are growing signs of risk, the market is, as always, difficult to predict in the near term. If it does selloff, that’s okay. Stocks in this portfolio are well positioned to endure further hardship and thrive beyond this crisis. Another down leg in the market will represent an opportunity to better position ourselves ahead of the ultimate recovery.

There have been so many changes in 2020, it pains me to heap another change onto your laps, and yet it is time for me to do so. I’ve implemented the next phase of my longtime career plan by establishing a U.S. equity hedge fund for which I am the portfolio manager.

The market continues to recover from last week’s short but intense decline. In our portfolio there’s been a dearth of news flow. That’s fine with me. I think we could all use a little less stimulation and step back from our computers and mobile devices a bit more. This has been a crazy spring.

U.S. and global markets continue to be fueled by substantial amounts of liquidity washing over the world. According to Lipper, the amount in American money market funds has reached $4.6 trillion. This is a record going back to 1992.

It’s been another crazy week in pandemic-land. After an interruption last week, the market seems to have resumed its ascent.

The week is representative of the tenuous state of the current market. Continued volatility is a strong possibility. Stocks have had a huge and rapid rebound from the March lows on anticipation of a powerful economic recovery and a booming economy in the third and fourth quarters.

This software company is expected to grow by more than 28% annually over the next five years.

One of the market truisms that I learned long ago concerns selling stocks near the end of a strong run-up—and because the odds are growing stronger that we’re nearing such a situation now, I bring it up today.

This portfolio stock reported Q2 results that came in better than expected on the top and bottom lines. Another stock moves to Hold.

The worm continues to turn for growth stocks, which are mostly lagging (at best) or cracking uptrends (at worst) after huge runs.

This electronics company beat analysts’ EPS estimates by $0.72 last quarter.

This asset manager saw its revenues increase 90%, to $28.3 million in the latest quarter.

Growth stocks continue to look iffy, with selling pressure becoming more persistent while money flows into other areas.

This lawn, garden, and pet supply company had a great third quarter.

This week has been good for the overall market, but for the leading growth titles, we’re seeing more abnormal selling than we have in a while.

This portfolio stock reported yesterday that Q2 revenue grew by 35% to $65.4 million (beating by $2.4 million) while adjusted EPS of $0.06 beat by $0.27.

I have a number of notes and recommended actions regarding several of our stocks that have made earnings-related moves recently.

This tobacco company is making waves, with its’ ‘heat-not-burn’ tobacco platform.

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.