After falling 4-6% two weeks ago, the S&P 500 and Nasdaq bounced back by 2-3% last week. Quite the whipsaw! By week’s end the S&P 500 had gained 2%, the Dow had risen marginally, and the Nasdaq had added 3.3%.

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%.

As value/contrarian investors, we have little interest in accepting the market’s wisdom. Some might say that we have little ability to accept the market’s wisdom, which is probably what distinguishes us from other investors (and academics) that accept such guidance.

We’ll quote Warren Buffett, founder and head of Berkshire Hathaway, who wrote in his 1987 letter to shareholders, “Mr. Market is there to serve you, not to guide you.” By this, he means that the stock market’s inability to make accurate predictions should help investors make money. And that these predictions shouldn’t provide guidance on how to invest, given that they are so often wrong.

These are confusing times in the market. It looks like a soft landing for the economy is more likely. But that’s no guarantee. We could still have a recession next year. The bull market could rage on or pull back. Instead of betting on the economic cycle, it’s a time to focus on individual stocks.

Artificial Intelligence (AI) exploded onto the market scene in a huge way in May when semiconductor company Nvidia (NVDA) blew away earnings expectations citing much higher demand for AI chips than anyone expected. It added another leg to the bull market as AI-related stocks soared.

Wells Fargo & Company (WFC) reported second-quarter results this morning, and we comment on the report.

Shares of ESAB Corp (ESAB) have crossed our $68 price target so we are now formally reviewing the rating and price target.

With the 4^th of July holiday last Tuesday it felt like 75% of the country was on vacation for the week and whatever happened in the market was a mirage.

This week things came into sharper focus. And the bull argument firmed up with the better-than-expected June CPI reading yesterday morning. The annualized 3.0% CPI inflation rate is the lowest in more than two years and came in below estimates of 3.1%.

That report helped the S&P 600 Small Cap Index, as represented by the iShares Core S&P Small-Cap ETF (IJR), jump up to its highest level since March 10 and move convincingly through the 100 level.

In a letter outlining his near-term agenda, Senate majority leader Chuck Schumer (D-NY) says passing bank reform favoring the cannabis sector is a top priority.

The letter to Senate colleagues confirms what lobbyists and cannabis company executives have been reiterating for the past several weeks: July could be a turning point for the group, offering legislative developments that push marijuana stocks much higher.

This sets up cannabis as a potentially good short-term swing trade, but it also confirms the bullish long-term prospects for the group.

The first half of the year produced stock market returns that few, if any, anticipated. The S&P 500 has uncorked a 15.6% year-to-date return (through last Friday), a remarkably strong showing relative to the index’s history. Brokerage firm forecasts for the rest of the year have an exceptionally wide breadth given the equally wide range of economic forecasts. We will readily admit that we are not in the forecasting business. This saves us from the considerable embarrassment that comes with forecasting as well as an immense amount of time. Our approach requires us to be “macro-aware” but not “macro-driven.” As such, we are well aware of the milieu of others’ forecasts, and the rationales behind them, but find them unactionable for our style of investing.

It’s anybody’s guess what the second half will have in store for the market. The first half surprised almost everyone with a stellar 16% gain in the S&P.

Investors are sensing a soft-landing, whereby we get past this Fed rate hiking cycle without a recession and minimal economic pain. Recent economic numbers reflect a greater likelihood of that scenario.

Anything is possible. The market could be off to the races, or it could sober up and pull back. Inflation is falling while the Fed is still making hawkish noises. It’s reasonable to assume that even if the economy isn’t slowing down yet, the Fed will continue to raise rates until it does.

This was a quiet week for our stocks. Earnings season starts next Friday, with Wells Fargo (WFC) reporting, followed by Nokia (NOK) and First Horizon (FHN) the next week. Based on the preliminary calendar, the earnings deluge starts on Tuesday, July 27.

WHAT TO DO NOW: Remain optimistic but keep an open mind. At this point, our market timing indicators remain bullish and we’re seeing little abnormal action among leading stocks—that said, the Fed/interest rate situation refuses to go away, and near term, some more shaking of the tree is certainly possible to raise the fear level. Tonight, we have no new buys or sells, but we’ll place Inspire Medical (INSP) and Monday.com (MNDY) on Hold and see how things progress. Our cash position will remain in the 30% range.

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 S&P 500 delivered an impressive 16% return in the first half. Can the good times continue in the second half?

A big part of the latest surge higher has been the artificial intelligence (AI) excitement. After Nvidia (NVDA) blew away expectations citing far greater demand for AI technology, the market-leading tech sector caught fire. But returns were impressive even before then as the market is sensing a soft landing.

We need to roll our short calls in TIP prior to expiration. However, I intend on allowing our DBC short calls to expire worthless and sell more premium at the onset of next week.

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.

With the market tumbling, GLD and TLT have surged higher. As a result, the deltas of both positions are at parity, so we need to buy back our short calls and sell more.

With 39 days left until expiration, we have the ability to take off our DIA bear call spread for a nice profit.

The market tried to find support today, but as the hours have passed things continue to open up on the downside, with sharp losses in the indexes (especially the broad market). After last night’s sales we have a good-sized cash position, and today we’re going to sell a bit more, dumping our position in Uber (UBER), which is our weakest remaining stock and whose breakout has failed. Our cash level will now be around 57%. Details below.

Trimming BCAB, SGHT and NRDS

We currently own the MMM January 17, 2025, 90 call LEAPS contract at $41.40. You must own LEAPS in order to use this strategy.

We currently own the INTC January 17, 2025, 17.5 call LEAPS contract at $11.40. You must own LEAPS in order to use this strategy.

Ahead of next week’s March issue, I’m going to make a few changes to our portfolio today.

We currently own the VTI January 19, 2024, 145 call LEAPS contract at $54.50. You must own LEAPS in order to use this 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.