In the September Issue of Cabot Early Opportunities we continue to focus on tech stocks, while adding a small-cap biotech stock into the mix. We also review some of our portfolio management musings from last month.

Enjoy!

The market’s weak start to September and this Monday’s decline flipped our Cabot Tides to bearish; we responded by selling half of our leveraged long fund (SSO) and holding the cash. However, even with that decline, we were encouraged to see growth stocks hold firm, and the bounce back since then has also been good to see. If this turns out to be one big shakeout, there are many names on our watch list that we’d like to start positions in, but it’s too soon to conclude that.

Tonight, we have no changes, though the next few days should be key.

Despite the recent dicey market, there are two great opportunities created by a weird interest rate move that is likely to correct itself in the months ahead.

The yield curve, defined as the difference between short- and long-term interest rates, has flattened as the benchmark 10-year Treasury rate has fallen. The rate has fallen from 1.75% in February to the current 1.31%, despite the stronger economy and persistent inflation.



I believe rates have moved far too low. Interest rates are still well below what has been defined as normal for the last decade. The 10-year rate is still well below the pre-pandemic level. Plus, the benchmark rate averaged between 2% and 3% during both the Obama and Trump Administrations.



Interest rates have fallen too far and are likely to trend higher in the months ahead. Two portfolio stocks benefit from the difference between short and long rates and have been held back by the falling rates. These stocks are likely to move higher as the situation reverses

Last week the major indices took another small step backwards. The S&P 500 lost 0.57%, the Dow fell 0.06%, and the Nasdaq declined 0.41%.



The decline deepened among all the major indices Monday as ongoing uncertainties around Chinese property developer Evergrande heightened. Evergrande faces a debt payment on its offshore bonds Thursday, so until some clarity is seen I would expect to see further volatility.



The S&P 500 has now witnessed a 4.4% decline since the closing highs back on September 2. So the 5% pullback everyone has been discussing over the past several weeks could come to fruition over the next few trading sessions.



To be more defensive, this week I am going to sell in-the-money calls to stay a bit on the safe side.

The bull market remains intact, despite this morning’s sharp selloff, so I continue to recommend that you be heavily invested in stocks that help achieve your investing goals.

Today’s featured stock is a very conservative one, a solid financial institution with a good dividend, and the prospect of growing earnings as interest rates rise.



As for the current portfolio, there are no changes. It will be interesting to see which stocks bounce best after the selling pressures ease.

Current Market Outlook


Our intermediate-term trend model has effectively been neutral for months, with the big-cap indexes acting pretty well but most other areas chopping sideways. Today, though, the sellers got their act together, with the S&P 500 decisive diving below its 50-day line and small caps actually falling below their 200-day line! That’s certainly a change in character and, for the first time in months, turns the intermediate-term trend down. Of course, the evidence hadn’t quite lined up for a while now, so we’ve been playing it more cautiously than normal, but now it’s time to step carefully and see how this plays out. As for positive tidings, there are some: The bad news out there (Chinese real estate) is obvious, and looking at individual stocks, many growth titles are now holding up far better than the Dow or S&P 500 (a marked change from earlier this year). Thus, we’re still holding our resilient names and are OK doing a little buying as stocks pull in to support, but it’s not time to be a hero, with the focus shifting more toward preserving capital. Our Market Monitor has moved to a level 5.

If you are aiming to put a little money to work, you want to look for names that have recently shown good-volume buying. Happily, this week’s list has many names in this club, and our Top Pick is Lululemon (LULU), which is emerging from a long rest and has held its recent earnings gap despite the market’s dip.

Stock Name	Price	Buy Range	Loss Limit
Align Technology (ALGN)	710	685-705	640-650
Catalent Inc (CTLT)	136	129-133	121-123
Chesapeake Energy Corporation (CHK)	60	58-60	52-53
Cloudflare (NET)	127	120-124	108-110
Entegris (ENTG)	129	124-127	114-116
KKR & Co. L.P. (KKR)	62	63.5-65.5	59.5-61
Lending Club (LC)	27	25.5-27	22.5-23.5
Lululemon Athletica (LULU)	420	407-420	370-375
Natera (NTRA)	120	115-119	105-107
Wingstop (WING)	182	173-177	159-161

U.S. stocks struggle a bit to regain momentum as Hong Kong’s Hang Seng and China’s Shanghai Composite contract. Investors seem to be taking a close look at valuations as markets from Japan to Europe trade at lower valuations. The big $3.5 trillion spending bill is spooking U.S. markets and splitting U.S. Senators. Today our new recommendation is a play on the aging baby boomer generation, which will increasingly require more medical attention.

A continued mixed bag of signals from Greentech still yields some good stocks to profit with. We’ve been muddling through “two steps forward and one step back” kind of action, which means today’s market may seem bad, but the bigger picture keeps improving. The key is to continue to be diligent about avoiding weak stocks and search for good fundamental underpinnings to chart moves with the strong ones. The market is slowly laying the groundwork for the next leg of Greentech’s bull move.



This issue, we’re returning to a segment of Greentech that was red hot for a brief period before simple bad luck turned investors against it for years. The sector recently broke through long-held resistance. That’s a plus. Our featured stock has a monopoly on parts of its market. It’s nicely priced for its existing business already, but its shift into next-generation technology suggests huge opportunities ahead – that’s a big plus.



We also have newly recommended ratings, suggested buy ranges for a couple, and updated sell-stops for many of our current portfolio holdings. We also now have “sell” call on one holding which has broken through support.



Read through for more details.

With markets expecting a deal right around the corner, the Trump administration signaled its frustration by threatening to raise tariffs on roughly $200 billion of Chinese imports to 25%, from 10%, last Friday.

Things were going so well in the market. Last week I gushed about the strong 3.2% first quarter GDP report. Then an outside event had to come in and spoil the party, at least for now.

Remain bullish, but keep your eyes open. Our indicators and most of our stocks are still trending up, though we’re seeing some funky action that’s worth monitoring.

The new all time high is a significant milestone. Although the S&P 500 hasn’t hit new highs quite yet it is only just about .01% from the mark. The new high is significant because it negates any possibility that we have been in a bear market since September, when the previous high was established.

When a famous company’s stock falls, there are lessons to be learned that can help you improve your game. Shares of 3M Co. (MMM) fell last week when first-quarter results revealed revenue and profits that did not meet the market’s expectations.

It’s earnings season so most investors are focused on individual stocks. And with the S&P 500 and Nasdaq hitting new all-time highs this week, the big picture is looking pretty good too!

Our EEM Signal slipped below its 20-day moving average this morning and is right on top of its 50-day average. We will remain positive and constructive but lean toward finding some bargains. Most likely, the next two ideas will come from heavyweights India and China.

A merger and a spin-off for this drug company looks attractive.

This media company just raised its dividend by 2%, giving it an 8% annual yield, paid monthly.

In the past month, five analysts have increased their 2020 forecasts for this contract research organization.

This mega drug company is forecasted to grow at an annual rate of 14% over the next five years.

Crista updates us on some Earnings and has two rating changes

The top three sectors in this ETF are: Consumer Defensive (28.43% of assets), Communication Services (21.24%), and Financial Services (14.83%).

Waste removal is not glamorous, but it is profitable.

The market has gotten a little jumpy given the potential impacts of a broader coronavirus outbreak and the trickle of earnings-related announcements, which have the grounding effect of telling us what’s actually going on inside companies these days.

Two portfolio stocks report earnings beats.

This new ETF provides a juicy dividend yield 4.09%, of paid quarterly and it adds to returns by employing a covered call strategy.

Seven analysts have just increased their EPS analysts for this mining stock.

It’s still a bull market, but our Cabot Tides are close to the fence and the odds are that the recent burst in selling pressures probably won’t go away overnight.

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.