*Note: Your next issue of Cabot Options Trader will arrive next Tuesday, May 27 due to the market holiday next Monday, May 26 in observance of Memorial Day.

Sparked by positive trade developments, the stock market raced higher last week as the S&P 500 rallied 5%, the Dow gained 3.4%, and the Nasdaq added 6%.

From a top-down perspective, the market’s action over the past few weeks is about as good as you could have hoped for -- our Cabot Tides, Two-Second Indicator and Aggression Index have turned positive, and combined with the negative sentiment and blastoff-type indicators, we think the path of least resistance has turned up and solid gains are likely, at least when looking out many months.

The holdup is growth stock leadership, which has been tricky to this point, with many strong stocks getting hit while beaten-down names rally. That situation has improved some this week, but we want to see more fresh leadership kick off in the weeks ahead.

Still, we’ve reacted to the improvement in the evidence by making a few moves, some on the sell side (kicking out laggards), but a bunch on the buy side -- we still have 55% cash and are hoping to put some of that work if and as new leaders emerge. We review all our thoughts and some names we’re watching closely for purchase in tonight’s issue.

Just a little over a month ago, stocks were crashing. But things are changing fast.

The tariff uncertainty has vastly improved with the announcement of trade deals with the U.K. and positive negotiations with China. The S&P has soared 22% from the intraday low on April 7. The index is now in positive territory YTD and within 5% of the all-time high. The technology-laden Nasdaq index is up 28% from the April low.

But the market tends to overreact in the near term. Tariff trouble isn’t over yet. There could still be setbacks. A negative headline can roil the market on any day. There’s also the economy. Growth is slowing. It may pick up or slow further. What will be waiting beyond the tariffs?

Fortunately, there is a trend to bank on that will thrive regardless of the near-term gyrations of the market or economy.

Artificial intelligence is a massive growth catalyst that will endure and thrive in any environment. It is a generational phenomenon that will drive certain stocks to huge gains. The dominant trend has sold down and consolidated in recent months. Such a move was overdue. But technology is coming back strong. It’s the hottest sector again.

In this issue, I highlight a goliath in the technology industry that is poised for a huge growth windfall from artificial intelligence in the years ahead. The stock has fallen far from the high. But the AI trend is revving up again and will likely transcend the current unpredictable environment.

The Federal Reserve event came and passed without much volatility last week as stocks were mostly quiet. For the week, the S&P 500 fell 0.5%, the Dow lost 0.2%, and the Nasdaq declined by 0.3%. But yesterday’s 3% run-up in the S&P 500 and nearly 4% in the Nasdaq – fueled by a 90-day pause on U.S.-China tariffs – may have signaled a turning point for the market. Stay tuned.

There’s no question that, from a top-down perspective, the evidence has continued to improve over the past few weeks, with today seeing the market surge as the U.S. and China slashed tariffs on each other. That said, even with today’s run in the indexes, leadership is hard to spot—many names that approach old highs are rejected, with the buying focused on beaten-down names for the most part. Don’t get us wrong: We’re encouraged and extending our line, but we’re doing so slowly until some real leadership develops. Our Market Monitor stands at a level 6.

This week’s list has a mix of names from different sectors and with some at different areas on their charts. Our Top Pick staged a classic gap to new highs after earnings last week. We’re fine starting small here or on dips.

Tariff fears have eased, or are at least on extended hold, and the market feels jubilant for the first time in months. Is it the start of an extended rally that could get us back to new highs? Probably too early to tell. But it’s been a boon for our portfolio, led by Tesla (TSLA), which is up 14% in the last week. Today we add an undervalued travel stock to the portfolio that’s a household name that got hammered during Covid but has come out the other side with flying colors – and yet shares are still playing catch-up. It’s a stock I recommended to my Cabot Value Investor audience earlier this month.

Details inside.

The Federal Reserve event came and passed without much volatility last week as stocks were mostly quiet. For the week the S&P 500 fell 0.5%, the Dow lost 0.2%, and the Nasdaq declined by 0.3%

The Federal Reserve event came and passed without much volatility last week as stocks were mostly quiet. For the week the S&P 500 fell 0.5%, the Dow lost 0.2%, and the Nasdaq declined by 0.3%

While the volatility continues, the markets made some upward progress since our last issue, with all the broad indexes rising—although both Growth and Value stocks are still negative, year to date.

Sector-wise, all sectors— except for Energy (-6.02%), Technology (-7.34%) and Consumer Discretionary (-11.17%)—are in the black, led by Utilities (+5.10%), Consumer Staples (+3.66%), and Real Estate (+2.98%).

The Federal Reserve meets this week, but most economists expect no change in interest rates (for now). We’ll see how inflation is faring next week, which should give us some insight as to future Fed action and whether or not we can anticipate any rate relief this summer.

Japan is back as a place to invest some capital for a number of reasons.

Japanese retail investors have cash positions above 50% versus about 15% for Americans.

Japanese corporates have long been criticized for hoarding cash on their balance sheets and low capital expenditures due to cross-shareholdings with sister companies. But over the past 12 months, share buybacks are on track to increase 96% year-over-year, and the reduction in cross-shareholdings has increased by 75% in the last fiscal year.

All this leads us to consider today a second Japanese stock as an Explorer recommendation.

The market continued its strong rebound from its early-April lows as the indexes rose all five days last week. The S&P 500 gained 2.9%, the Dow rallied 3% and the Nasdaq advanced by 3.4%.

Given where we stood a month ago, you couldn’t have asked for much better action from the market—now it’s a matter of following through: The intermediate-term trend is on the fence, and many individual stocks have been (possibly temporarily) rejected near obvious resistance levels. Thus, if we see further strength this week, turning the trend up for many indexes and allowing some fresh leaders to take off, we’ll look to extend our line—but if the sellers dig in, more patience will be needed. Right now, we’re sticking with our Market Monitor at a level 5, and we’ll adjust if need be in the days ahead.

This week’s list has a lot of strong names, including a few that have recently reacted well to earnings. Our Top Pick is one of the stronger names in one of the strongest growth areas (cybersecurity). We’re OK starting small here.

After a brief dip following the post-election euphoria, the market is right back to a new high.

So far, the promise of stronger economic growth is more than offsetting the likelihood of higher interest rates for longer. As a result, new sectors have emerged as market leaders. Cyclical sectors have taken off. The financial, energy, and consumer discretionary sectors are leading the market. Those sectors are up 9.3%, 5.7%, and 8.6% respectively in the three weeks since the election.

In today’s note, we discuss a number of earnings results and new developments for several of our portfolio positions, including Alcoa (AA), Brookfield Wealth Solutions (BNT), Intel (INTC) and Starbucks (SBUX).


The broad market outlook remains bullish for the rest of this year and early next year, but with the possibility for weakness to emerge heading further into 2025.

WHAT TO DO NOW: Remain bullish, but again, be sure to keep your feet on the ground. The pullback last week was tedious, and our Two-Second Indicator is looking iffy, but the market’s trends have remained up and growth stocks are still very strong. We sold one-third of our Palatir (PLTR) position earlier this week, booking partial profits in a good winner, and tonight we’re going to average up in Samsara (IOT), buying another 5% stake, which will leave us with around 19% in cash. Details below.

Quick Note: Due to the Thanksgiving holiday, you will receive next week’s Small-Cap update a day early, on Wednesday, November 27, 2024.

The S&P 600 SmallCap Index raced higher right after the election, gave a little back last week, found support at the previous all-time high early this week, and is now rallying again.

I think the small-cap story is starting to get out there and driving a wave of interest from investors who haven’t given small caps much thought for a few years. There is so much potential to rally from here that it can be a little hard not to get too bullish.

Tesla (TSLA) is getting lots of headlines these days, and for good reason.

Their CEO and founder, Elon Musk, was tabbed by President-elect Donald Trump to head up something called the Department of Government Efficiency (along with Vivek Ramaswamy); their stock price is up 57% in the last month; and the company is coming off its first truly encouraging quarterly earnings report in a year. Anyone who invested in TSLA a year ago, five years ago, or 13 years ago, when our Mike Cintolo first recommended the stock in his Cabot Top Ten Trader advisory, has made a LOT of money.

But another company has surpassed Tesla as the biggest EV seller in the world. And today, we add it to the Cabot Value Investor portfolio.

After a huge post-election rally, the market leveled off.

The S&P 500 soared 5% in the three days after the election. Since then, it hasn’t pulled back with any significance, but it has stopped going up.

The market leveled off last week after the huge election surge. Stocks are trying to find a more sober post-election footing.

The S&P 500 was down very slightly last week after soaring 5% in the three days following the election. The initial reaction to the Trump victory was higher growth expectations and a surge in cyclical stocks countered by a spike in interest rates. We’ll see if those trends continue after the market fully digests the election.

In today’s note, we discuss a number of earnings results and new developments for several of our portfolio positions, including Barrick Gold (GOLD), Centuri Holdings (CTRI), Intel (INTC), Pan American Silver (PAAS) and Super Hi International Holding (HDL).

The favorable liquidity backdrop should continue for the rest of Q4, which is ideal for initiating new turnaround trading positions.

Trump’s victory has given the S&P 600 SmallCap Index the jolt it needed to break out above this year’s overhead resistance at 1,465.

This is what it looks like on a daily chart going back about a year ...

The rally since the election continues as Bitcoin reached $90,000 for the first time. Tesla (TSLA) has climbed more than 40%, and the KBW Nasdaq Bank Index, which tracks shares of some of the nation’s largest lenders, is surging.

Dutch Bros (BROS) shares jumped 36% this week as it beat analysts’ expectations on the top and bottom lines while offering improved guidance for the remainder of 2024. Sea Limited (SE) soared 10.3% as the Singapore-based company reported overall net income that beat estimates at $153.3 million, with a better-than-projected 31% rise in revenue for the September quarter.

The honeymoon phase for a second Trump term continues on Wall Street. Stocks are up 3.5% in the week since Trump won the election, with all three of the major indexes advancing to new all-time highs. The reaction is being framed as specific to Donald Trump and his potential influence on stock prices – the so-called “Trump Trade” – but in reality, this is nothing new.

In recent years, there’s always been a honeymoon phase for stocks after a presidential election – regardless of which party or candidate won. And it typically lasts until the newly elected president’s inauguration in late January.

Donald Trump was elected President last Tuesday, and the market posted the best week of the year. The S&P 500 soared about 5% in the three days following the election.

Investors perceive his election will deliver stronger economic growth, primarily through deregulation and tax cuts. Although interest rates spiked higher on the expectation of a stronger economy, the market views the revised prognosis as overwhelmingly bullish, so far.

Shares of Leonardo DRS (DRS) are trading down today despite Q1 results that came in ahead of expectations across the company as a whole, but with results in the legacy Advanced Sensing & Computing (ASC) segment just coming in as expected. It was the Integrated Mission Systems (IMS), which includes electric power and propulsion, doing the heavy lifting.

Shares of TransMedics (TMDX) are indicated to open nicely higher this morning (+10% to 15%) after the company smashed Q1 expectations.

Back on April 24 I suggested cannabis stocks looked like a buy in their weakened state. I singled out two ETFs for simplicity.

Shares of Soleno Therapeutics (SLNO) are rallying today after the FDA granted the company’s lead drug candidate (DCCR) Breakthrough Therapy Designation for the treatment of adults and children ages four years and older with Prader-Willi syndrome (PWS). The award was based on data from the Phase 3 program and it means accelerated review of DCCR. Recall that we are awaiting submission of an NDA for DCCR in mid-2024, and eventual FDA approval (which is now expected to happen more quickly) would mean Soleno can begin selling the therapy. Like most biotech stocks, SLNO can move around a lot. Today’s action shows why frustrating drawdowns on no news (like the one over the last three months) can “not really matter” when good news strikes. Will keep SLNO at hold and look for follow-through. HOLD

We have a couple of very solid earnings reports that should help shares move higher today, provided we don’t get a major curveball with the PCE inflation report out at 8:30 AM ET.

Shares of Vertiv (VRT) are indicated to open at a fresh all-time high today after the company delivered a solid Q1 with terrific order flow and upgraded forward guidance.

Cannabis stocks look attractive in the current weakness. While there will likely be more general market downside, a negative for cannabis since the group gets sold when sentiment shifts to “risk off,” two potential catalysts loom.

MP Materials (MP), a rare earths mine and processor, is down about 11% this morning.

WHAT TO DO NOW: Remain cautious as the market’s correction accelerates. Today is another poor day in the market, and while nothing’s changed with the evidence, more stocks are melting away. Today we’re going to sell the rest of our stake in Arista Networks (ANET), which hasn’t been able to get off its knees since last Friday’s decline and is our weakest stock. Our cash position will now be around 44%.

Today, a whopping eight Profit Booster positions will expire. Most are “slam-dunk,” full-profit trades, while others will go down to the wire.

The big takeaway, before we dive in, is we are going to let the situation play itself out, and come Monday/Tuesday of next week we will revisit our profits, as well as how we will manage the remaining positions.

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.