Issues
Before I dive into my election preview, I first wanted to address Palantir (PLTR) earnings as the company will report its quarterly results today after the close.
The big picture for the market and for growth stocks remains very positive in our view, however, some near-term uncertainties and headwinds have kept us from doing much buying of late, and today saw the first real, widespread distribution in growth stocks since early September. Right now, then, we’re focused on managing our portfolio through earnings season, holding our strong names while jettisoning weak ones and looking to accumulate fresh leaders.
Tonight, we are selling one of our smaller positions that keeled over on earnings, and placing on other name on Hold--but we’re also sitting tight with our other strong, profitable names as we see what earnings season will bring.
Tonight, we are selling one of our smaller positions that keeled over on earnings, and placing on other name on Hold--but we’re also sitting tight with our other strong, profitable names as we see what earnings season will bring.
Given that the majority of Americans on both the left and the right favor cannabis legalization, it’s no surprise that marijuana has emerged as a significant campaign issue.
Therefore, it makes sense to think about election outcome scenarios and what they mean for cannabis investors.
Big picture, no matter what happens in the presidential election, cannabis wins. That’s because both candidates support major cannabis reform in one way or another. But obviously, some outcomes are better than others. Here are the three main scenarios, from best to worst.
Therefore, it makes sense to think about election outcome scenarios and what they mean for cannabis investors.
Big picture, no matter what happens in the presidential election, cannabis wins. That’s because both candidates support major cannabis reform in one way or another. But obviously, some outcomes are better than others. Here are the three main scenarios, from best to worst.
For much of the last four years, the “friendly skies” have been anything but for the airline industry and its customers. The restrictive measures of the Covid era put the entire $1.2 trillion air travel industry into a tailspin, causing massive financial losses and layoffs for the major carriers, not to mention major headaches for travelers.
The problems began in March 2020 and continued through that year, but by the start of 2021, industry-wide losses totaled over $35 billion, with no fewer than 64 airlines around the world ceasing operations. By the time Covid restrictions were lifted in 2023 (in the words of a contemporary CNN report), “A handful [of airlines] have revived after announcing bankruptcy, or changed names, but the vast majority are gone for good.”
The problems began in March 2020 and continued through that year, but by the start of 2021, industry-wide losses totaled over $35 billion, with no fewer than 64 airlines around the world ceasing operations. By the time Covid restrictions were lifted in 2023 (in the words of a contemporary CNN report), “A handful [of airlines] have revived after announcing bankruptcy, or changed names, but the vast majority are gone for good.”
Ahead of a monster week of economic data and earnings releases the S&P 500 fell 0.85%, the Dow lost 2.6%, and the Nasdaq gained 0.4%
All in all, the evidence remains unchanged: The major indexes are positive but not exactly powerful, with resistance (such as near 500 on QQQ) still capping many measures, but leadership remains intact, with strong stocks refusing to give much ground and fresh breakouts from the past month acting well. Of course, earnings season is still ongoing, and you can never rule out the market’s key leadership being dented or some abnormal action appearing. But you can always find something that could go wrong in the market—right now, the buyers are in control. We’ll keep our Market Monitor at a level 8.
This week’s list is very broad, with everything from industrials to real estate to true-blue growth stories. Our Top Pick is a pure cyclical name that just busted out of a long-term consolidation on giant volume.
This week’s list is very broad, with everything from industrials to real estate to true-blue growth stories. Our Top Pick is a pure cyclical name that just busted out of a long-term consolidation on giant volume.
The deep breath before a toss-up presidential election has arrived on Wall Street, with stocks barely budging in the last two to three weeks. Investors are likely prepared for either outcome but are waiting until a winner is declared before resuming this two-year bull market rally. While we wait, it’s a good time to pare down our portfolio a bit, which we do today by saying goodbye to three recent laggards. We also add a high-growth tech stock with plenty of momentum that Mike Cintolo recommended to his Cabot Top Ten Trader audience a week ago.
Details inside.
Details inside.
Ahead of a monster week of economic data and earnings releases the S&P 500 fell 0.85%, the Dow lost 2.6%, and the Nasdaq gained 0.4%
Ahead of a monster week of economic data and earnings releases the S&P 500 fell 0.85%, the Dow lost 2.6%, and the Nasdaq gained 0.4%
As I mentioned recently, I’m now in Europe looking for intelligence and ideas.
This week I’m in Madrid and visited the stock exchange (bourse) and met with some local brokers to try to get a feel for the market and region. Like brokers always are, they were bullish on stocks and especially gold. One stock we discussed which I have followed from time to time is Banco Santander (SAN). It is in a nice uptrend and still well below book value, but I need to do some research and reach out to some friends who previously worked for Santander to get their views before considering a recommendation.
Instead, today I have a new gold stock recommendation.
This week I’m in Madrid and visited the stock exchange (bourse) and met with some local brokers to try to get a feel for the market and region. Like brokers always are, they were bullish on stocks and especially gold. One stock we discussed which I have followed from time to time is Banco Santander (SAN). It is in a nice uptrend and still well below book value, but I need to do some research and reach out to some friends who previously worked for Santander to get their views before considering a recommendation.
Instead, today I have a new gold stock recommendation.
This country has a massive shortage of housing.
It is estimated that the current demand for homes exceeds the national supply by a whopping 4.5 million. The shortfall has caused the median U.S. home price to double since 2011 and soar a staggering 40% just since the pandemic. In many areas, prices have increased a lot more.
High prices combined with the highest mortgage rates in decades have made housing unaffordable. Zillow estimates that only 15.1% of current non-homeowner households can afford a typical mortgage.
But there is reason to believe the housing problems will get a lot better in the years ahead.
Mortgage rates are falling. The average U.S. 30-year fixed mortgage rate has fallen to 6.6% from 7.2% this past May and 7.8% a year ago. And rates are likely to continue to trend lower from multi-decade highs in the years ahead. Prices are coming down too. The average U.S. home price has declined about 7% since the beginning of last year.
While the situation is likely to improve, the supply/demand imbalance will likely remain for several years. That’s a problem for the housing market and economy to work through. But it’s good news for homebuilders. New homes should be in high demand for years to come, and sales should increase with the improving conditions.
In this issue, I highlight one of the best homebuilders on the market. The stock has been a stellar performer as investors realize the opportunity. But it is still reasonably valued and has momentum. It should provide a covered call opportunity soon.
It is estimated that the current demand for homes exceeds the national supply by a whopping 4.5 million. The shortfall has caused the median U.S. home price to double since 2011 and soar a staggering 40% just since the pandemic. In many areas, prices have increased a lot more.
High prices combined with the highest mortgage rates in decades have made housing unaffordable. Zillow estimates that only 15.1% of current non-homeowner households can afford a typical mortgage.
But there is reason to believe the housing problems will get a lot better in the years ahead.
Mortgage rates are falling. The average U.S. 30-year fixed mortgage rate has fallen to 6.6% from 7.2% this past May and 7.8% a year ago. And rates are likely to continue to trend lower from multi-decade highs in the years ahead. Prices are coming down too. The average U.S. home price has declined about 7% since the beginning of last year.
While the situation is likely to improve, the supply/demand imbalance will likely remain for several years. That’s a problem for the housing market and economy to work through. But it’s good news for homebuilders. New homes should be in high demand for years to come, and sales should increase with the improving conditions.
In this issue, I highlight one of the best homebuilders on the market. The stock has been a stellar performer as investors realize the opportunity. But it is still reasonably valued and has momentum. It should provide a covered call opportunity soon.
Before we dive into this week’s covered call idea we need to move on from our Rocket (RKT) position following expiration last Friday as the call expired worthless, leaving us with our stock position.
Updates
Cabot Options Institute Income Trader is focused exclusively on the creating consistent income through a variety of options selling strategies. Whether you have questions about selling puts, covered strangles, jade lizards or our income wheel approach, Andy is more than happy to help you steepen your learning curve in this live event.
It’s earnings season again! And this one should be more important than most.
Earnings are, of course, a big deal for the individual company. But in addition to company-specific fundamentals, Wall Street will be carefully watching what company earnings indicate about the macro environment.
Earnings are, of course, a big deal for the individual company. But in addition to company-specific fundamentals, Wall Street will be carefully watching what company earnings indicate about the macro environment.
Earnings season has arrived, and with it could be a recalibration of investor expectations for stocks broadly.
The S&P 500 Index seems reasonably priced at 19.5x estimated 2024 earnings. But nearly 30% of the index’s weight comprises Magnificent Seven stocks, whose average multiple is 33x. Estimated earnings growth rates for these Mag Seven stocks, which average 19% for each of the next five years, set a high bar. When high expectations meet less-high reality… well, investors know what can happen to stock prices. And, any wobbling in the largest stocks can send the market broadly lower. As Dennis Gartman, the legendary and now-retired writer of The Gartman Letter, frequently said, “When the generals leave the field, the rest of the army follows.”
The S&P 500 Index seems reasonably priced at 19.5x estimated 2024 earnings. But nearly 30% of the index’s weight comprises Magnificent Seven stocks, whose average multiple is 33x. Estimated earnings growth rates for these Mag Seven stocks, which average 19% for each of the next five years, set a high bar. When high expectations meet less-high reality… well, investors know what can happen to stock prices. And, any wobbling in the largest stocks can send the market broadly lower. As Dennis Gartman, the legendary and now-retired writer of The Gartman Letter, frequently said, “When the generals leave the field, the rest of the army follows.”
The market surge has leveled off. The expectation debate about peak interest rates, inflation, and recession continues. And now, it’s another earnings season.
The S&P 500 pulled back during the first trading week of the year after a two-month, 15% spike. In the second week, the index gained back everything it lost the first week. He we are again on the cusp of the all-time high set about two years ago.
The S&P 500 pulled back during the first trading week of the year after a two-month, 15% spike. In the second week, the index gained back everything it lost the first week. He we are again on the cusp of the all-time high set about two years ago.
In today’s note, we discuss the earnings reports from Wells Fargo (WFC). Please note that our comments on Well’s earnings didn’t make it into the podcast.
The first two weeks of 2024 have been a bit sloppy with the markets down the first week, strengthening a bit this week then back down again today as this morning’s inflation numbers (CPI) came in a little higher than expected.
Thus far small caps have lagged large caps this year at the index level, though it’s not worth overthinking it too much just 11 days into the year.
Thus far small caps have lagged large caps this year at the index level, though it’s not worth overthinking it too much just 11 days into the year.
A major challenge in 2024 for investors and analysts alike will be separating the artificial intelligence (AI) “pretenders” from the “contenders.” Super Micro Computer (SMCI), a recent Explorer recommendation, was up 23% this week, and Exscientia (EXAI) shares were up 13% yesterday.
Back on December 27 I suggested holding off on cannabis sector purchases given the group strength at the time. We had realized nice gains, and it did not make sense to chase the stocks. “I prefer to add on weakness rather than strength,” I wrote. I recommended adding on weakness of 2% to 4% or more in any of our portfolio names.
The AdvisorShares Pure US Cannabis (MSOS) and AdvisorShares MSOS 2X Daily (MSOX) exchange traded funds (ETFs) closed that day at 6.93 and 3.60, respectively, and went on to fall 4.5% to 9% over the next few trading days.
The AdvisorShares Pure US Cannabis (MSOS) and AdvisorShares MSOS 2X Daily (MSOX) exchange traded funds (ETFs) closed that day at 6.93 and 3.60, respectively, and went on to fall 4.5% to 9% over the next few trading days.
It’s been widely noted that the stock market’s sloppy start to 2024 is among the worst in a decade, or longer. Traders and TV commentators carry on about how the first trading day, or week, or month, sets the tone for the entire year. “How goes January, so goes the year” is a frequently bandied saying. It’s enough to make an investor toss in the towel and wait until 2025.
The longer I am in the investing world, the less I listen to this banter. It all sounds great, and maybe there are some years in which these ultra-short-term trends-as-predictors pan out, but they are so unreliable that they are worthless at best. Even if they had a 100% accuracy rate, why make a bet that this perfect record will continue?
The longer I am in the investing world, the less I listen to this banter. It all sounds great, and maybe there are some years in which these ultra-short-term trends-as-predictors pan out, but they are so unreliable that they are worthless at best. Even if they had a 100% accuracy rate, why make a bet that this perfect record will continue?
The new year started with a whimper. Last week’s 1.5% down move ended a streak of nine consecutive up weeks for the S&P 500, the longest streak since 2004.
The streak had to end eventually. And a pullback after a 15% move higher is normal. Bull markets tend to have several 3% and 5% down moves. There may be more downside in the weeks ahead. But we are still in a market that is trending higher.
The streak had to end eventually. And a pullback after a 15% move higher is normal. Bull markets tend to have several 3% and 5% down moves. There may be more downside in the weeks ahead. But we are still in a market that is trending higher.
Alerts
Our Small Dogs of the Dow portfolio continues to push higher. More specifically, our INTC position is up 60% since we initiated it back at the beginning of 2023. The underlying stock position is only up 25%, again, showing the power of using a poor man’s covered call strategy on individual stocks and ETFs.
August expiration is upon us, so we need to buy back the rest of August calls and immediately sell more premium in September or October. Expect to see quite a few alerts over the next few days.
I will be exiting the Home Depot (HD) trade today. I will discuss the trade in greater detail in our upcoming weekly issue.
With 35 days left until expiration, I’ve decided to go ahead and lock in our gains on the trade. As a result, our track record stands at 86.8% (33/38 winning trades) with a total return around 150%.
With the August 18, 2023, expiration cycle coming to a close in seven days, it’s time to start buying back the rest of our August 18 short calls and selling more premium going out 30 to 60 days. I’ll be sending out numerous trade alerts for the various portfolios over the next few days, including the potential for a few more new trades in our active portfolios.
It’s nice to see Duolingo (DUOL) responding well to another very solid earnings release. The company reported that Q2 revenue grew 43.5% to $126.8 million (beating by $3.1 million) while adjusted EPS of $0.08 improved from -$0.38 in the year-ago quarter and beat by $0.27.
It was a tale of two earnings responses with Eli Lilly (LLY) and Si-Bone (SIBN) yesterday.
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.