As we like to say “up is good,” so last week’s snapback from the major indexes and many stocks and sectors is certainly a good thing, and we like that many stocks have actually built six- to 10-week launching pads. Thus, if the rally can continue, there should be plenty of names to sink our teeth into assuming earnings season goes well. However, first things first: The market and most stocks aren’t out of the woods yet, having “only” rallied back into resistance, and earnings season is still in full swing. We’ll leave our Market Monitor at a level 6, but we’ll change that quickly if the bulls show some follow-on buying.

This week’s list is a hodgepodge of earnings winners, resilient growth names and some commodity ideas as well. Our Top Pick is a volatile chip equipment maker with a system that’s perfectly suited for the AI revolution. Earnings are due next week, so keep it small here and see what the quarterly report brings.

The buyers finally stepped up after a brutal first three weeks of April, and suddenly the bull market feels back on again. One week doesn’t make a rally – not if the Fed (which rears its ugly head again this week) has anything to say about it. But for now, the selling has ceased, with an assist from a better-than-expected earnings season. Today’s addition isn’t exciting – it specializes in things like pipes, valves and water meters – but it’s a practical – and potentially quite profitable – way to play America’s geyser of infrastructure spending. It was newly recommended by Mike Cintolo to his Cabot Top Ten Trader readers.

Tech stocks steadied a bit this week as quarterly earnings started coming in. Sea (SE) was up this week on two analyst upgrades. Super Micro (SMCI) will report crucial quarterly earnings early next week.

The Explorer’s one current European stock recommendation is Danish drugmaker Novo Nordisk (NVO). It has passed French luxury group LVMH Moët Hennessy Louis Vuitton to become Europe’s most valuable company.

Cannabis stocks have fallen sharply since the beginning of April. The AdvisorShares Pure U.S. Cannabis (MSOS) is down 15.4% since April 1. There are two reasons.

First, investor enthusiasm for stocks overall has waned, creating significant declines across indices. Because cannabis is perceived as a riskier sector, cannabis stocks decline more than most stocks when investors move into risk-off mode.

Second, many analysts and investors had hoped for visible progress on key catalysts by now – chiefly rescheduling and cannabis banking reform. They have been disappointed.

In twenty years of price forecasting, the most valuable lesson I have learned is that the rate of change tells us everything we need to know about the immediate future. When it accelerates, it tends to continue accelerating. When it decelerates, it tends to continue decelerating. And surprisingly, this tends to be the case no matter what metric we choose to examine.

The rally sputtered. And it’s all about interest rates.

Investors had been factoring in falling interest rates and a soft landing. But now, investors are increasingly expecting no landing and continued high rates. Recent strong economic numbers, along with higher-than-expected inflation, are changing the perception.

It looks like these high rates will stick around for a while. And most stocks don’t like high rates. But not all. There are some companies that actually thrive with higher interest rates. And that creates opportunity. In this issue, I highlight a stock that pays a massive dividend generated by these high interest rates. As income investors, we can reap the bounty.

Before we get into this week’s idea we need to clean up a couple of positions from April expiration last Friday. This is what we are going to do …

Sell FROG Stock
Sell HOOD Stock
Sell IOT Stock

Stepping back, we are closing our FROG and IOT positions for losses, while HOOD will be closed at its max profit.

With weeks of churning action and complacent sentiment, the market was flirting with trouble for a while, and now it’s hit the intermediate-term tripwire. Thus, we mostly advise defense here—after a big run-up and the aforementioned churning, the odds favor more short-term downside testing and/or pain ahead. That said, the odds also favor a resumption of the longer-term uptrend down the road, so it’s best not to get too holed up in your bunker, either. Tonight, we’ll leave our Market Monitor at a level 6, and the main message is to hold a good chunk of cash, honor stops and be very selective on the buy side.

This week’s list is another broad mix of stocks, with something for everyone in terms of stories, sectors and setups. Our Top Pick is a reliable grower in the infrastructure area that’s pulling back toward support. Given the market, keep new buys on the small side.

It’s been a painful April for stocks, with the S&P 500 down more than 5% and many growth and small-cap stocks down much further. But in the grand scheme, some selling was to be expected after five straight months of gains. It’s still a bull market, and it’s not likely to up and fizzle after five months. Eventually, selling pressures will ease, and the market will bounce back. Until then, we have to ride out the storm. Today, we do that in several ways: selling two more of our laggards, downgrading two once-red-hot stocks that are in the midst of steep corrections, and adding a new stock from perhaps the one strong sector at the moment: gold miners. It’s a new addition from Tyler Laundon in Cabot Early Opportunities.

There is no sugar-coating it, the market, led by the Nasdaq which has fallen for six straight trading sessions, had a bad week. By week’s end, the S&P 500 fell 4%, the Dow lost 1%, and the Nasdaq dropped 6.2%.

There is no sugar-coating it, the market, led by the Nasdaq which has fallen for six straight trading sessions, had a bad week. By week’s end, the S&P 500 fell 4%, the Dow lost 1%, and the Nasdaq dropped 6.2%.

The market has definitively changed character, with our Cabot Tides and Two-Second Indicator now negative—when combined with breakdowns among leading growth stocks, the odds favor more short-term weakness ahead. We’ve been holding some cash for a while and have boosted that this week, with 37% on the sideline, and we could raise more if the selling continues.

That said, we’re not aiming to hide out in our bunkers--following some short-term pain, the odds favor further long-term gains given the underlying trend and the lack of big-picture abnormal action out there. Thus, having taken partial profits in many names, we’re OK giving them a chance to find support, as some are likely to have another leg up after this downturn. In tonight’s issue, we’re moving a couple more stocks to Hold, hanging onto our cash and writing about many names that are taking the selling in stride and could have upside if the market finds its footing.

The last two weeks have been a lot less fun than June and most of July. But big picture, a pullback is not remotely surprising.

Through yesterday’s close, both the large and small-cap indices were down about 2.6% from their recent highs. The Nasdaq was down almost 5%.

What is a little surprising is the rapid change of tone out there. This can be squarely blamed on Fitch’s downgrade of U.S. debt and Moody’s bearish notes on those 10 banks they think don’t look so hot.

At least four states posted record cannabis sales in June and July, Illinois, Maryland, Massachusetts and Missouri.

These sales trends and ongoing legalization around the world are why global cannabis sales will hit $104 billion a year by 2030, says a recent report from Vantage Market Research. That would represent an annual growth of 26% a year from 2023 to 2030.

Despite these positive trends, cannabis stocks are being held back by delays in reform efforts in Washington, D.C.

As most everyone knows, last week, Fitch Ratings downgraded the credit rating of U.S. Long-Term Foreign-Currency Issuer Default Rating (IDR) to AA+ from AAA. This follows by a decade a similar downgrade by Standard & Poor’s.


The response by politicians, media, capital markets participants and commentators was a big yawn at best, with more than a few sharp dismissals and denials of the report’s relevance, timeliness and accuracy.


In the real world, which is outside of the publicity bubble, what does the downgrade actually mean? In the near term, almost nothing. The ability of the U.S. government today to attract capital on respectable terms and repay its debts on time and in full is rock solid. Few if any sovereign debt has a repayment track record and underlying fundamentals that are as sturdy as that of U.S. government debt.

Stocks are starting the week back in business after last week’s dip over the credit downgrade. The credit downgrade doesn’t appear to be having much effect on the market at this point. Unless that changes, the market appears poised to continue to forge higher, at least for the time being.

Meanwhile, it’s still earnings season and the past couple of weeks have been busy for the portfolio. Earnings had been very kind to the portfolio two weeks ago with Digital Realty (DLR), AbbVie (ABBV), and Intel (INTC) all getting sizable boosts with better-than-expected results. But the season soured on the portfolio last week as both Qualcomm (QCOM) and Star Bulk Carriers (SBLK) laid eggs.

We comment on earnings from Adient (ADNT), Dril-Quip (DRQ), ESAB Corp (ESAB), Frontier Group Holdings (ULCC), Gannett (GCI), Goodyear Tire (GT), Janus Henderson Group (JHG), Kaman Corporation (KAMN), Warner Bros Discovery (WBD) and Western Digital (WDC).

WHAT TO DO NOW: Continue to pare back and hold some cash—though you should also continue to hold your resilient stocks and keep your eyes open for an eventual turn back up in the market (and growth stocks in particular). In the Model Portfolio, we sold pieces of DoubleVerify (DV) and Celsius (CELH) earlier this week, leaving us with 36% in cash. We’ll stand pat tonight but will be on the horn if we have any further changes going ahead.

This is a short week as we begin the second half of 2023 with inflation down, recession fears fading, and the animal spirits of investors alive and well.

In the first half of 2023, market performance was positive and narrow, largely driven by the big tech names, and especially artificial intelligence (AI) related stocks. The Dow was up 3.8%, the S&P 500 gained 15.9%, and the tech-heavy Nasdaq was up 31.7%. We will continue to explore the world for the best value and growth stocks providing both conservative and aggressive ideas. EVs across the supply chain, resources, and emerging markets remain the focus but we have the flexibility to change course as opportunities arise.

The market continues to ride the soft-landing high. The S&P 500 returned more than 3% in July and is now up 19% YTD and within just 4% of the all-time high.

The bullish mood is brought on by the fact that the miserable inflation/Fed conundrum that drove stocks into a bear market last year is ending. And it appears that we will not have to endure a recession. Even though S&P earnings are falling for the third straight quarter, investors are bullish about the future.

This was another quiet week in the micro-cap world as large-cap stocks continue to roar higher.

Many large-cap companies have reported, but we will have to wait a few weeks for our micro-cap companies to report Q2 earnings.

Here are some takeaways from earnings season.

The good times are here again. The S&P 500 is up over 19% YTD and is now within just 4% of the all-time high. Stocks are in a strong uptrend that began in the beginning of May and appear likely to move still higher.

Inflation is crashing. The Fed is about out of bullets. And there is no recession in sight. Things could always discombobulate down the road. But there doesn’t appear at this point to be anything ahead in the next month or so that will change the current positive narrative.

WHAT TO DO NOW: The overall market remains mixed, but the under-the-surface action remains a meat grinder, with numerous stocks getting chewed up after making big swings. Today, we’re cutting loose On Holdings (ONON), which had a great Q1 but has nevertheless seen sellers swarm. This will leave us with more than 70% in cash, which is too high given the evidence, so we may have a new addition or two in tomorrow’s issue, though we’ll have to see how it goes given the continued air pockets among potential leaders.

We have one short call position left in May that needs to be rolled, SPY. There is little to no value left in our May 19, 2023, 420 calls, so as a result, I want to buy back our 420 calls and immediately sell more calls. This should help to bring our deltas back in line as well.

Disney (DIS) is due to announce earnings today (Wednesday) after the closing bell.

Disney (DIS) is due to announce earnings today (Wednesday) after the closing bell.

Airbnb (ABNB) and Rivian (RIVN) Report

Expensify (EXFY) reported underwhelming Q1 2023 results after the bell yesterday. Our goal here was to get into what seems like a promising long-term opportunity with a small specialist (expense management and other financial tools for small and very small businesses) before the trends turned more positive.

With 37 days until the June 16, 2023, expiration, I want to lock in another profitable trade today, this time in DIA. We can take well over 50% of the original premium sold for a nice gain.

WHAT TO DO NOW: The story remains the same for the market, which has some positives, but we continue to see wild action among leading stocks, with some doing OK but others hitting air pockets on no news or decent earnings reports. Today, we’re going to have to sell our half-sized stake in Axon (AXON), which reported a fine quarter and opened unchanged but was divebombed today and cracked support. We’ll sell and hold the cash for now.

Intapp (INTA) reported another solid quarter after the closing bell yesterday, sending shares up around 15% today.

It’s time to start selling puts again in GDX. With 11 days left until expiration, our May 19, 2023, 32 puts are worth $0.07. As a result, I want to buy back our puts, lock in some profits and immediately sell more put premium.

I want to add some additional downside exposure; so, with SPY trading for 411, I want to place a short-term bear call spread going out 42 days and outside of the expected range to the upside, or 429.

HUBS, SITM and MSFT

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.