Issues
The market’s brief rally ran into a wall last week, and while the major indexes found some support near their March lows initially, today’s tariff-induced plunge put an end to that. While the headlines and news items are hitting the wires fast and furious, we urge you to stay focused on the evidence--doing so is why we were nearly 60% in cash the day after the market’s February top and why we’ve been north of 80% cash in recent weeks, shielding the portfolio from the worst of the decline. Tonight, we are forced to sell one of our remaining small positions, which will boost our cash hoard to the upper-80% range.
For now, we’re comfortable remaining in our storm cellar, but while the news and action is awful now, there are some rays of light out there (like falling Treasury rates), as well as many stocks that are etching higher lows right now while the market does the opposite (see more in tonight’s issue). Eventually, this down period will give way to a great money-making opportunity, so keep your head up--but stay defensive for now.
For now, we’re comfortable remaining in our storm cellar, but while the news and action is awful now, there are some rays of light out there (like falling Treasury rates), as well as many stocks that are etching higher lows right now while the market does the opposite (see more in tonight’s issue). Eventually, this down period will give way to a great money-making opportunity, so keep your head up--but stay defensive for now.
U.S. stocks remain paralyzed by tariff fears, but not energy stocks. They’re the best-performing S&P 500 sector by far this year, more than doubling the return of any other sector. And yet, they remain the most undervalued sector by virtually every measure. So this month, we add a large-cap energy stock to the Cabot Value Investor portfolio that has a yearslong history of not only outperforming the market, but blowing it out of the water. But after a slow start to the year, it’s trading at a rare discount. We think it has immediate upside – and a high dividend yield should hold us over until it gets there.
Details inside.
Details inside.
The S&P 500’s rally of 1.8% last Monday was quickly washed away as the bears once again sold into strength last week. By week’s end the S&P 500 had lost 1.5%, the Dow had declined by 1% and the Nasdaq had fallen by 2.6%.
The market had what amounted to a halfway decent eight-day rally, but the sellers pounced on that move, with most major indexes testing or reaching new correction lows today. From here, we’ll be watching to see how this short-term retest phase goes—given the very negative sentiment and obvious reason for the selling (tariffs), a super-powerful rally from here would be intriguing, especially if some resilient stocks (those that are holding well above their lows from a couple weeks ago) take flight. Over time, this decline will set the stage for a buoyant advance with lots of new leadership, but until that payoff arrives, continue to practice patience. As always, though, we just go with the here and now; we’ll yank our Market Monitor back down a notch to a level 3.
This week’s list is again very well rounded, though not surprisingly, there’s fewer go-go growth names, as more well-situated outfits are favored. Our Top Pick has both growth and defensive characteristics, and the stock is holding up very well.
This week’s list is again very well rounded, though not surprisingly, there’s fewer go-go growth names, as more well-situated outfits are favored. Our Top Pick has both growth and defensive characteristics, and the stock is holding up very well.
So much for the market rebound. Or is this a classic double bottom before the real rally begins after Wednesday’s “Liberation Day” full of Trump’s latest round of mysterious tariffs finally passes and Wall Street breathes a collective sigh of relief? I’m betting the clouds part sooner rather than later, as investor pessimism has reached levels not seen since the October 2022 bear market bottom. So today, despite saying goodbye to a few more underperforming positions, I’m betting on the upside of growth, adding a mid-cap software stock recently recommended by Tyler Laundon to his Cabot Early Opportunities readers.
Details inside.
Details inside.
Please note, I will be traveling Monday through Wednesday of this week, which means I will not send a Daily morning Option Order Flow email Tuesday through Thursday. And while I will be traveling, as always, I will keep my eye on the market and if we need to act on a position, I will send an update or alert.
The S&P 500’s rally of 1.8% Monday was quickly washed away as the bears once again sold into strength. By week’s end the S&P 500 had lost 1.5%, the Dow had declined by 1% and the Nasdaq had fallen by 2.6%.
The S&P 500’s rally of 1.8% Monday was quickly washed away as the bears once again sold into strength. By week’s end the S&P 500 had lost 1.5%, the Dow had declined by 1% and the Nasdaq had fallen by 2.6%.
Please note, I will be traveling Monday through Wednesday of this week, which means I will not send a Daily morning Option Order Flow email Tuesday through Thursday. And while I will be traveling, as always, I will keep my eye on the market and if we need to act on a position, I will send an update or alert.
The S&P 500’s rally of 1.8% Monday was quickly washed away as the bears once again sold into strength. By week’s end the S&P 500 had lost 1.5%, the Dow had declined by 1% and the Nasdaq had fallen by 2.6%.
The S&P 500’s rally of 1.8% Monday was quickly washed away as the bears once again sold into strength. By week’s end the S&P 500 had lost 1.5%, the Dow had declined by 1% and the Nasdaq had fallen by 2.6%.
The markets continue to lack direction and are buffeted by uncertainty regarding tariffs, taxes and spending, debt and conflict, but yesterday came to life as concerns over some of these risks were mollified. Nevertheless, broadening and diversifying your portfolio makes sense to maintain an objective of growth while also being mindful of protecting your wealth.
This brings us to gold - and today’s recommendation.
This brings us to gold - and today’s recommendation.
The cannabis sector remains unloved as investors abandon hope that President Donald Trump will come through on his campaign promise to reschedule the drug.
Moving cannabis to Schedule III from Schedule I under the Controlled Substances Act would help cannabis companies by obviating an IRS rule that prohibits them from deducting operating expenses (Rule 280E).
I continue to think Trump will live up to his “promises made, promises kept” mantra. It will take some time, because he’s obviously active on many fronts, and cannabis reform does not rise to the level of top priority. Polls continue to show the majority of voters favor reform, particularly younger voters. So, there’s a favorable political angle for conservatives in cannabis reform. Cannabis sales growth continues to be particularly strong (6.2%) in Missouri, a red state.
Moving cannabis to Schedule III from Schedule I under the Controlled Substances Act would help cannabis companies by obviating an IRS rule that prohibits them from deducting operating expenses (Rule 280E).
I continue to think Trump will live up to his “promises made, promises kept” mantra. It will take some time, because he’s obviously active on many fronts, and cannabis reform does not rise to the level of top priority. Polls continue to show the majority of voters favor reform, particularly younger voters. So, there’s a favorable political angle for conservatives in cannabis reform. Cannabis sales growth continues to be particularly strong (6.2%) in Missouri, a red state.
The first quarter of 2025 has been interesting, to say the least. We wrap it up with the March Issue featuring names across the software, security, coffee chain, specialty metals and sports betting markets.
A few familiar faces, and a few new ones, should mean something for everybody. Details inside.
A few familiar faces, and a few new ones, should mean something for everybody. Details inside.
In uncertain times like these, it’s only natural that defensive-minded investors are gravitating to healthcare stocks. After all, this space is characterized by consistent demand for essential products and services that millions rely on, regardless of the state of the economy. (Additionally, many of the companies in this category offer dividends that can be considered quite attractive during market sell-offs.)
While the sector itself has only lately returned to favor, a number of consumer-facing healthcare companies remain out of Wall Street’s good graces and under the public’s radar—including some which provide critical staple products for the everyday needs of consumers.
One of those companies is today’s turnaround recommendation.
While the sector itself has only lately returned to favor, a number of consumer-facing healthcare companies remain out of Wall Street’s good graces and under the public’s radar—including some which provide critical staple products for the everyday needs of consumers.
One of those companies is today’s turnaround recommendation.
After falling into correction territory earlier this month, the S&P 500 came off the bottom and has been trending higher. Is that the end of the selling? I don’t think the market has decided yet.
Some tariff clarity could arrive soon. Stocks rallied strongly to start the week partially on news that pending tariffs will be more “targeted.” Technology stocks also rallied on the perception of higher-than-expected AI demand. But the market is very headline sensitive. And the headlines are likely to keep on coming.
If I had to bet, I would say the market probably made the bottom for now and is more likely to trend higher. But I don’t have a high degree of confidence right now. A couple of negative headlines could send stocks plunging to new lows.
There are some select stocks that are actually near the 52-week high. I’m more comfortable selling a covered call on a stock with recent strong performance than initiating a new stock position at this point. In this issue, I highlight a covered call for the biopharmaceutical company AbbVie Inc. (ABBV).
Some tariff clarity could arrive soon. Stocks rallied strongly to start the week partially on news that pending tariffs will be more “targeted.” Technology stocks also rallied on the perception of higher-than-expected AI demand. But the market is very headline sensitive. And the headlines are likely to keep on coming.
If I had to bet, I would say the market probably made the bottom for now and is more likely to trend higher. But I don’t have a high degree of confidence right now. A couple of negative headlines could send stocks plunging to new lows.
There are some select stocks that are actually near the 52-week high. I’m more comfortable selling a covered call on a stock with recent strong performance than initiating a new stock position at this point. In this issue, I highlight a covered call for the biopharmaceutical company AbbVie Inc. (ABBV).
Updates
The market is hot stuff again. The S&P made a new high this week after making up all the early September losses and then some. It is the 40th record close for the index, which is now up 20% YTD with another quarter left.
In today’s note, we discuss the recent developments concerning Duluth Holdings (DLTH), Gannett (GCI) and Zillow (Z), with a particular emphasis on the latter due to recent interest rate-related strength.
Despite our focus on primarily mid-stage turnarounds with exceptional momentum potential in recent weeks, I’m looking for potential opportunities in early-stage candidates due to the additional improvement in the market’s intermediate-term outlook, thanks to the Fed’s latest rate cut.
Despite our focus on primarily mid-stage turnarounds with exceptional momentum potential in recent weeks, I’m looking for potential opportunities in early-stage candidates due to the additional improvement in the market’s intermediate-term outlook, thanks to the Fed’s latest rate cut.
Finally! The Fed met yesterday and, as expected, began a rate cutting cycle. The market, and small caps, love it.
The magnitude of the September cut, 50 bps, is a bit of a surprise. Despite what Fed Chair Jerome Powell said during the press conference yesterday, this is partially a make-up cut. Since there was no meeting in August, and the Fed didn’t cut in July, it was time to make a statement.
The magnitude of the September cut, 50 bps, is a bit of a surprise. Despite what Fed Chair Jerome Powell said during the press conference yesterday, this is partially a make-up cut. Since there was no meeting in August, and the Fed didn’t cut in July, it was time to make a statement.
The Federal Reserve has voted to lower interest rates by a half percentage point, the first since 2020 and more than many expected. The overwhelming Fed board vote suggests more rate reductions are likely this year. This Fed move was clearly already baked into markets but keep in mind that the Fed only controls overnight interbank interest rates. Nevertheless, this action will help support the market and boost interest rate-sensitive stocks such as real estate and utilities.
The Fed went big!
Everyone knew Jerome Powell and company were going to (finally) cut the federal funds rate for the first time in four and a half years on Wednesday. The question was by how much – 50 basis points (0.50%) or 25 basis points (0.25%)? To my mild surprise (but not to Wall Street’s – the options market had swung to a 59% probability that it would be 50 bps prior to the announcement), the Fed opted for the larger cut, slashing rates from 5.25-5.5% to a 4.75-5.25% range. So far, the market seems unsure how to take the hefty cut – all three major indexes were up more than half a percent immediately following yesterday’s 2 p.m. ET announcement, but then were narrowly in the red by day’s end.
Everyone knew Jerome Powell and company were going to (finally) cut the federal funds rate for the first time in four and a half years on Wednesday. The question was by how much – 50 basis points (0.50%) or 25 basis points (0.25%)? To my mild surprise (but not to Wall Street’s – the options market had swung to a 59% probability that it would be 50 bps prior to the announcement), the Fed opted for the larger cut, slashing rates from 5.25-5.5% to a 4.75-5.25% range. So far, the market seems unsure how to take the hefty cut – all three major indexes were up more than half a percent immediately following yesterday’s 2 p.m. ET announcement, but then were narrowly in the red by day’s end.
It’s a new era, a changing of the guard. This week a Fed easing cycle starts as the Fed will begin to lower the Federal Funds rate after the steepest hiking cycle in decades. The easing cycle is expected to last for years.
The Fed’s moment has finally arrived.
The Fed raised the Fed Funds rate at the steepest pace since the 1980s in 2022 and 2023, from 0% to 5.5% over just an 18-month span. The Fed Funds rate has remained at a multi-decade high of 5.50% for more than a year. The Fed is expected to begin cutting the rate this week and will likely continue to do so for the next two years.
The Fed raised the Fed Funds rate at the steepest pace since the 1980s in 2022 and 2023, from 0% to 5.5% over just an 18-month span. The Fed Funds rate has remained at a multi-decade high of 5.50% for more than a year. The Fed is expected to begin cutting the rate this week and will likely continue to do so for the next two years.
In today’s note, we discuss the recent news developments concerning Nokia (NOK), Vodaphone (VOD), Janus Henderson Group (JHG), Fidelity National (FIS) and B2GOLD (BTG), with a particular emphasis on the latter due to recent precious metal market strength.
WHAT TO DO NOW: Remain cautious but stay flexible. From a top-down perspective, the market and growth stocks are basically in the confines of correction/consolidation, though many individual names continue to handle themselves well, with many we own surging to new highs in the past couple of days. Last week, we pruned two names, but tonight we’ll add a half-sized position in Argenx (ARGX), a name that’s been on our watch list and is set up well for higher prices if the market cooperates. Our cash position will now be around 41%.
After a couple of tough weeks, maybe due to a lingering yen carry-trade impact and a little too much concern over a weakening economy, the market has acted much better the last couple of days.
It seems we’re in one of those periods where there isn’t a major market catalyst, even though we’re getting inflation reports, presidential debates and a Fed meeting. So the market is just bouncing around.
It seems we’re in one of those periods where there isn’t a major market catalyst, even though we’re getting inflation reports, presidential debates and a Fed meeting. So the market is just bouncing around.
The Magnificent Seven have run into a brick wall in the second half of 2024.
After carrying the market in the first half of the year, and through much of 2023, the seven largest mega-cap tech stocks – Amazon (AMZN), Apple (AAPL), Google (GOOG), Meta (META), Microsoft (MSFT), Nvidia (NVDA) and Tesla (TSLA) – have all seen the air let out of their balloons in the last two and a half months, or longer in some cases. On average, those seven stocks, which comprise roughly 30% of the S&P 500, are down 3.7% since the beginning of July. Not coincidentally, the S&P 500 as a whole is flat, after being up about 15% in the first six months of the year, during which six of the Mag. 7 (TSLA was down) performed even better.
After carrying the market in the first half of the year, and through much of 2023, the seven largest mega-cap tech stocks – Amazon (AMZN), Apple (AAPL), Google (GOOG), Meta (META), Microsoft (MSFT), Nvidia (NVDA) and Tesla (TSLA) – have all seen the air let out of their balloons in the last two and a half months, or longer in some cases. On average, those seven stocks, which comprise roughly 30% of the S&P 500, are down 3.7% since the beginning of July. Not coincidentally, the S&P 500 as a whole is flat, after being up about 15% in the first six months of the year, during which six of the Mag. 7 (TSLA was down) performed even better.
Back on August 28 and September 3, I suggested buying cannabis stocks in the severe weakness that put a lot of cannabis investors in a deeply distressed state. I cited the excessive negativity and the potential for a bullish update from presidential candidate Donald Trump on his cannabis policy.
On September 9 we got the Trump update, and it was very bullish for the sector. Cannabis stocks moved up sharply.
On September 9 we got the Trump update, and it was very bullish for the sector. Cannabis stocks moved up sharply.
Alerts
WHAT TO DO NOW: The story remains the same, with the primary evidence in good shape, though many leaders are extended and more are starting to wobble. Last Friday, we sold half of Elastic (ESTC), which got walloped on earnings, and today we’ll sell the rest, as the stock has continued to show weakness. That will leave us with 37% in cash, which is more than we’d prefer—we’ll hold on to it for the moment but could re-deploy some in the very near future.
GitLab (GTLB): Good Quarter, Questionable Guidance. Book The Gain
In Income Trader, we’ve managed to lock in a return of over 45% in BITO. Not many can say they’ve made money in BITO on a more consistent basis, or any other crypto-related asset, since the beginning of June 2022. Just another reason why more and more individual investors are flocking to the tried-and-true, mechanically driven, income wheel approach.
GLD has pushed through our short call strike and the deltas of our LEAPS and short call contract are at parity. As a result, let’s buy back our short call and sell more going out to the April expiration cycle. As a reminder to those with an established position, I will be selling our LEAPS contract the next time around and initiating a new LEAPS position going out to the January 2026 expiration cycle. Our position is up over 22%, while the individual ETF, by comparison, is only up 10% over the same time frame.
WHAT TO DO NOW: Not much has changed today vs. our update last night when it comes to the market, but after a couple of positive earnings reactions this week, today brought a downer—Elastic (ESTC) is getting hit after a good-not-great report. It’s not a complete meltdown given the recent move, but we’re going to sell half our position and see how the stock acts from here. Our cash position will now be around 33%.
My “plan” to enter the weekend patting myself on the back for a week of decent stock performance in our portfolio might be foiled by Elastic (ESTC).
For those who are new and wish to enter a trade, all of the details are listed in the alert (as always) for those wanting to initiate a position. As always, if you have any questions, please do not hesitate to email me at andy@cabotwealth.com.
Portfolios
Strategy
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.