Issues
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.
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.
In the April Issue of Cabot Early Opportunities we take heed of the market’s recent volatility by digging into a wider-than-normal range of emerging opportunities.
We have gold mining, AI website development tools, healthy fast-casual dining and a few things in between!
As always, there should be something for everybody.
We have gold mining, AI website development tools, healthy fast-casual dining and a few things in between!
As always, there should be something for everybody.
Risk off was the theme last week as traders are once again worried about sticky inflation, and now there is growing fear of further war in the Middle East. And while those are two big worries, big picture it wasn’t a terrible week for the indexes as the S&P 500 and Nasdaq both fell 1.6%, while the Dow lost 2.36%
After weeks of churning and choppy action, last week finally brought some “real” negative headlines that kicked the fear level up a few notches. As always, what’s more important to us is the market’s reaction to the news, and at this point, the intermediate-term advance is on the fence, with most indexes testing their 50-day lines and with more and more leaders doing the same. Big picture, it’s hardly a disaster, but we continue to be a little cautious, being selective on the buy side and holding some cash. We’ll pull down our Market Monitor to a level 6.
This week’s list has something for everyone, with growth, crypto, commodities and all types of potential setups. Our Top Pick is a smaller outfit with a great story—and it’s one of the few stocks that’s shown big-volume buying in recent days.
This week’s list has something for everyone, with growth, crypto, commodities and all types of potential setups. Our Top Pick is a smaller outfit with a great story—and it’s one of the few stocks that’s shown big-volume buying in recent days.
The first real market turbulence of 2024 has arrived. But you don’t have to fear it. Pullbacks are normal – no bull market simply goes up in perpetuity – and, in the long run, healthy. It’s best to use it as an opportunity to cleanse your portfolio of some laggards and buy good companies at better prices. We check both of those boxes in today’s issue, adding an up-and-coming retail cookie-cutter story that’s a new favorite of Cabot Growth Investor Chief Analyst Mike Cintolo. Mike loves the upside, and buying on the recent dip makes it even more attractive.
Risk off was the theme last week as traders are once again worried about sticky inflation, and now there is growing fear of further war in the Middle East. And while those are two big worries, big picture it wasn’t a terrible week for the indexes as the S&P 500 and Nasdaq both fell 1.6%, while the Dow lost 2.36%
Risk off was the theme last week as traders are once again worried about sticky inflation, and now there is growing fear of further war in the Middle East. And while those are two big worries, big picture it wasn’t a terrible week for the indexes as the S&P 500 and Nasdaq both fell 1.6%, while the Dow lost 2.36%
It was more of the same for the markets this past month—some momentum, but ultimately, we ended up in just about the same place.
Investors are a little gun-shy as most were expecting Fed rate cuts to begin in the latter half of the year. But as the inflation beast is proving harder to tame than expected, Fed Chair Jerome Powell has indicated it may take longer before we see a rate cut. Naturally, the markets had an issue with that.
However, they seem to have absorbed that information and gone back to business.
All in all, we are still bullish here at Cabot, but also maintaining our judicious stock-picking stance.
This month, I have an undervalued company that’s also in growth mode for you, recommended by an analyst new to these pages. I’m really excited for you to hear about both!
Investors are a little gun-shy as most were expecting Fed rate cuts to begin in the latter half of the year. But as the inflation beast is proving harder to tame than expected, Fed Chair Jerome Powell has indicated it may take longer before we see a rate cut. Naturally, the markets had an issue with that.
However, they seem to have absorbed that information and gone back to business.
All in all, we are still bullish here at Cabot, but also maintaining our judicious stock-picking stance.
This month, I have an undervalued company that’s also in growth mode for you, recommended by an analyst new to these pages. I’m really excited for you to hear about both!
Inflation appears stuck at a much higher level than acceptable for the Federal Reserve so lower interest rates are on pause. Gold is one beneficiary.
This means that some high-flyer tech stocks may be vulnerable. Meanwhile, Japanese stocks remain near all-time highs.
Fortunately, we have exposure to both gold and Japan in the Explorer portfolio, and today we add to that exposure.
This means that some high-flyer tech stocks may be vulnerable. Meanwhile, Japanese stocks remain near all-time highs.
Fortunately, we have exposure to both gold and Japan in the Explorer portfolio, and today we add to that exposure.
While the financial news obsesses over what the Fed might have vaguely implied in the latest statement, the world is morphing into a different place. The demographic of humanity is rapidly transforming in a way that will massively affect the flow of money for the rest of our lives. The world is currently undergoing a technological revolution that is transforming society and everyday life.
The aging population and the technological revolution are megatrends that will dominate the investment landscape for years to come regardless of what the Fed does, or GDP in the next few quarters, or whoever gets elected president. It’s not an accident that the best performing stocks in the Cabot Dividend Investor portfolio are in healthcare and technology. Nor will it be an accident that these same stocks continue to dominate from this point forward.
In this issue, I highlight the massive opportunity to position yourself in front of a tsunami that could provide the best investments of your lifetime.
The aging population and the technological revolution are megatrends that will dominate the investment landscape for years to come regardless of what the Fed does, or GDP in the next few quarters, or whoever gets elected president. It’s not an accident that the best performing stocks in the Cabot Dividend Investor portfolio are in healthcare and technology. Nor will it be an accident that these same stocks continue to dominate from this point forward.
In this issue, I highlight the massive opportunity to position yourself in front of a tsunami that could provide the best investments of your lifetime.
For the past six to nine months the consensus among traders had been that the Federal Reserve would be cutting interest rates this year, and some thought it would be aggressive cutting. However, that narrative may have changed on Thursday as two Fed members noted that the central bank might not cut at all in 2024. This sent shockwaves through the stock market Thursday and Friday.
By week’s end the S&P 500 had fallen1%, the Dow had lost 2.25% and the Nasdaq had declined by 1%.
By week’s end the S&P 500 had fallen1%, the Dow had lost 2.25% and the Nasdaq had declined by 1%.
When it comes to the market and especially leading, Top Ten-type stocks, we’re increasingly seeing a game of ping pong occur—one day, the market and most stocks are up, but a day or two later will see selling, with many names that were perking up smacked right back down. We learned long ago not to anticipate things, so we continue to lean bullish but are also being selective. We’ll move our Market Monitor back to a level 7, but the real key is to remain flexible and take things on a stock-by-stock basis.
Meanwhile, our screens continue to find strong situations, including some decent setups should the market get moving. Our Top Pick this week is a name from the chip sector that erupted after earnings in February, but has spent two months calming down and is now standing just above support. A resumption of the rally from here would be tempting.
Meanwhile, our screens continue to find strong situations, including some decent setups should the market get moving. Our Top Pick this week is a name from the chip sector that erupted after earnings in February, but has spent two months calming down and is now standing just above support. A resumption of the rally from here would be tempting.
Updates
Hope you had a wonderful 4th of July!
The weather was less than ideal (raining all day in Wellesley, MA, where I live) but we made the most of it and had friends over for some hot dogs and hamburgers.
This has been the rainiest start to the summer in a long time. Fingers crossed better weather awaits us in the second half of July and August.
The weather was less than ideal (raining all day in Wellesley, MA, where I live) but we made the most of it and had friends over for some hot dogs and hamburgers.
This has been the rainiest start to the summer in a long time. Fingers crossed better weather awaits us in the second half of July and August.
It has been a fabulous rally that has proven naysayers wrong. The S&P 500 is up about 15% YTD just before the midpoint. Stocks have also rallied more than 20% from the October low into a new bull market.
How much gas is left in the tank?
Inflation is falling and the Fed is almost done hiking rates. It is also looking less likely that there will be a recession this year. Investors are optimistic that we can get to the other side of this hiking cycle without too much pain.
How much gas is left in the tank?
Inflation is falling and the Fed is almost done hiking rates. It is also looking less likely that there will be a recession this year. Investors are optimistic that we can get to the other side of this hiking cycle without too much pain.
This week, we comment on earnings from Walgreens Boots Alliance (WBA). We also include the Catalyst Report and a summary of the July edition of the Cabot Turnaround Letter, which was published on Wednesday. We encourage you to look through the Catalyst Report. This report is a listing of all of the companies that have reported a catalyst in the past month. These catalysts include new CEOs, activist activity, spin-offs and other possible game-changers. We source many of our feature recommendations from this list. You will find it nowhere else on Wall Street.
Small caps put together a decent week as the iShares Core S&P 600 Small Cap ETF is up 3.6% from last Thursday’s close.
Digging a little deeper, we’ve seen a lot of strength in small-cap industrials and tech plus some stability in small-cap financials and energy.
Digging a little deeper, we’ve seen a lot of strength in small-cap industrials and tech plus some stability in small-cap financials and energy.
Things are looking up. Inflation is falling. The Fed is almost done hiking. And there is no recession to be found.
The market has surprised just about everybody in the first half of the year. The S&P had risen 13% as of days before midyear and over 24% from the October low. This new bull market is not what was expected.
After an abysmal 2022, most pundits were expecting more ugliness in the first half of this year and a recovery somewhere in the second half. But investors sensed that we could get through this Fed rate hiking cycle with minimal pain. Then artificial intelligence (AI) gave stocks a further boost.
The market has surprised just about everybody in the first half of the year. The S&P had risen 13% as of days before midyear and over 24% from the October low. This new bull market is not what was expected.
After an abysmal 2022, most pundits were expecting more ugliness in the first half of this year and a recovery somewhere in the second half. But investors sensed that we could get through this Fed rate hiking cycle with minimal pain. Then artificial intelligence (AI) gave stocks a further boost.
Last week, I wrote about how the U.S. markets look expensive both on an absolute basis and relative to international stocks.
Since then, the market has pulled back by about 3% following a couple of hawkish comments by Jay Powell.
Nonetheless, the S&P 500 chart looks relatively healthy and I’m not in a rush to “fight the tape.” Upward trending markets tend to continue to trend upwards.
Since then, the market has pulled back by about 3% following a couple of hawkish comments by Jay Powell.
Nonetheless, the S&P 500 chart looks relatively healthy and I’m not in a rush to “fight the tape.” Upward trending markets tend to continue to trend upwards.
Within the span of the weekend, Yevgeny Prigozhin, head of mercenary army Wagner Group, launched a highly publicized and well-armed takeover attempt against Russia’s Vladimir Putin-headed government, then melted away into the murkiness that is the Kansas-sized Republic of Belarus.
This past week, none of our companies reported earnings and there were no ratings changes.
Shares of ESAB Corp (ESAB) are approaching but remain below our 68 price target. We like the company’s fundamentals, and the valuation isn’t stretched, so we see no reason to change our rating, at least until the shares reach or exceed our price target.
Shares of ESAB Corp (ESAB) are approaching but remain below our 68 price target. We like the company’s fundamentals, and the valuation isn’t stretched, so we see no reason to change our rating, at least until the shares reach or exceed our price target.
WHAT TO DO NOW: Remain optimistic. The market and leading stocks have finally begun to pull in somewhat, but the action has been completely normal so far and our market timing indicators are bullish. We’ve put a good chunk of money to work of late, and tonight we have one small addition—we’ll add a half-sized position (5% of the portfolio) in DraftKings (DKNG), which seems to be set up well. That will leave us with around 35% in cash, which we’ll aim to put to work (including, ideally, by filling out some existing positions) if the market continues to behave itself.
Fed Chairman Jerome Powell again threw a wrench into the market by warning that a couple of more interest rates hikes are probable this year. “The process of getting inflation down to 2% has a long way to go,” he told the House Financial Services Committee during a three-hour hearing. Not sure why they don’t get this over with.
Indian Prime Minister Narendra Modi arrives in America on his first official state visit with India’s geopolitical pull higher than at any point since he took power in 2014.
Indian Prime Minister Narendra Modi arrives in America on his first official state visit with India’s geopolitical pull higher than at any point since he took power in 2014.
Small caps are off about one percentage point over the last week while the S&P 500 is almost dead flat.
All things considered, that feels like a win to me – largely because the Fed signaled potential for two more rate hikes throughout the year. The Fed’s rate hike program has been the market’s bogeyman for over a year. The message the market is sending now is that, yeah, you might keep us on our toes, bogeyman, but we’re not scared any more. You can be dealt with.
All things considered, that feels like a win to me – largely because the Fed signaled potential for two more rate hikes throughout the year. The Fed’s rate hike program has been the market’s bogeyman for over a year. The message the market is sending now is that, yeah, you might keep us on our toes, bogeyman, but we’re not scared any more. You can be dealt with.
The impressive rally that has confounded so many may be running out of gas.
As of Friday’s close, the S&P 500 is up about 15% YTD and over 20% from the October low, making it officially a new bull market. Investors are optimistic that inflation is falling, the Fed is almost done hiking, and there is no recession in sight. The market is sensing that we can get through this rate-hiking cycle without much pain.
But this rally is not as impressive as it seems. Only about 10 large technology stocks account for just about all the YTD gains. The other 490 stocks on the index have collectively gone nowhere.
As of Friday’s close, the S&P 500 is up about 15% YTD and over 20% from the October low, making it officially a new bull market. Investors are optimistic that inflation is falling, the Fed is almost done hiking, and there is no recession in sight. The market is sensing that we can get through this rate-hiking cycle without much pain.
But this rally is not as impressive as it seems. Only about 10 large technology stocks account for just about all the YTD gains. The other 490 stocks on the index have collectively gone nowhere.
Alerts
We need to buy back the short calls in several of our Dog positions as there is little to no premium left. I plan on rolling most of our Dog positions over the next few days starting with VZ, IBM and DOW today.
With the DIA trading for 335.70, I want to place a short-term bear call spread going out 46 days and outside of the expected range to the upside, or 348. My intent is to take off the trade well before the April 21, 2023, expiration date.
MP Materials (MP), a rare earths mine and processor, is down about 11% this morning.
I’ve decided to hold on to my current LEAPS positions. Theta, or time decay, is still incredibly low so I’m going to hold on for another expiration cycle but plan to sell my LEAPS as we near the April 21, 2023, expiration cycle.
Flywire (FLYW) reported Q4 results after the close yesterday that beat expectations on the top and bottom lines. Revenue was up 42% to $73 million (beat by $7.55 million) while GAAP EPS of -$0.01 beat by $0.11.
There is little to no premium left in our March 3, 2023, 46 calls. As a result, I want to buy back our March 3, 2023, 46 calls, lock in profits and immediately sell more calls.
Even with a probability of success that sits just over 80%, we still have 16 days until our IWM March 17, 2023, iron condor is due to expire.
The market is testing key levels, as are many indicators, but today’s bounce is a small positive. Today’s bulletin is about Shift4 (FOUR), which cracked support on huge volume two weeks ago and hasn’t been able to bounce at all since. We’re going to sell one-third of our position today and see what earnings brings tomorrow. Our cash position will be around 38% after the sale.
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.