Despite some worries early in the week, the bulls once again bought the dip, and pushed the indexes near all-time highs. For the week, the S&P 500 and Dow gained approximately 1.35%, and the Nasdaq rallied 1.7%.

We were able to sell some call premium in PFE and put premium in BITO. As a result, we now have 6 positions in the portfolio with the hope to add a few more sources of income over the next week or two.

January offered us another good month as we brought in over 12% worth of premium. Let’s continue to keep it simple, stay mechanical and allow the strategy to do the heavy lifting. Our total returns now sit at all-time highs of 124.9%. We introduced the portfolio in June 2022 and continue to be impressed by the resilient and consistent nature of the income wheel strategy during all market environments.

The auto insurance market has been in a deep freeze since the middle of 2021. But now it’s thawing ... maybe even shifting into growth mode. That means huge potential for companies with direct access to the market.

That’s where today’s idea comes in. It’s a micro-cap internet company that offers unfiltered exposure to the auto, home and renters’ insurance markets.

All the details are inside the February Issue of Cabot Small-Cap Confidential.

The Federal Reserve held interest rates steady and signaled it is open to cutting later this year, especially if economic growth and employment slow in an election year. Big tech earnings so far are a mixed bag and below elevated expectations.

But cybersecurity companies have been resilient due to ever-growing demand. And today, we add a familiar cybersecurity name to the Explorer portfolio.

Our Cabot Cannabis Investor portfolio is up 35% this year. That’s more than 10 times the 3% gain for the S&P 500.

The broader cannabis sector has done well too, but not quite as well as our Cabot Cannabis Investor portfolio of the 12 best names in the space.

The New Cannabis Ventures Global Cannabis Stock Index and the ETFMG Alternative Harvest exchange traded fund (MJ) are up 14.5%. We’re up more than twice as much.

Our Cannabis Plus Insider Portfolio is up 39.3% since I launched it on March 29 last year. Here we have outperformed the market by threefold. The 39.3% advance compares to gains of 12.7% for the Russell 2000 index, and 22.3% for the S&P 500 over the same time. The smid-cap Russell 2000 is a more appropriate comp than large-cap names in the S&P 500. This portfolio invests in cannabis related companies that have the right kind of insider buying, and do not touch the plant.

Thank you for subscribing to the Cabot Turnaround Letter. We hope you enjoy reading the February 2024 issue.

This issue focuses exclusively on spin-offs and discusses seven attractive and relatively recently spun-off companies.

This month’s Buy recommendation, Baxter International (BAX), a major producer of medical equipment and hospital supplies, is involved in a spin-off. In this case, it is the parent company of an upcoming spin-off. The transaction, along with fundamental improvements and a long-time low share valuation, makes Baxter shares attractive.

Ahead of a potential monster week for the market, with plenty of volatility, last week was fairly quiet for the indexes. The S&P 500 gained 0.7%, and the Dow and Nasdaq were mostly unchanged.

We could pretty much cut and paste last week’s write-up here, as nothing much has changed with the evidence, and thus, with our positioning—the primary evidence remains bullish, with the trends of the indexes pointed up, and the action of leading stocks remains very solid. With that said, the broad market is mostly marking time, while interest rates are testing key intermediate-term levels. Long story short, we’re still bullish and are keeping our Market Monitor at a level 8, but are being more discerning on the buy side.

This week’s list has everything from popular tech names to cyclical tech to development-stage biotech, though as mentioned above, we like that we’re seeing some big-volume moves. Our Top Pick has a history of trending in good times and looks set for a big turnaround.

It’s a potentially very busy week for the market, as we close the book on a productive January. The Fed will come out with its latest interest rate progress report; new jobs numbers will be released; and 40% of the S&P 500 will report earnings. Expect some movement in the market. Entering the week, the market is behaving quite well, sitting at new all-time highs as I write this. It’s a good time to take some risks. And today, we do just that by adding a small-cap biotech that got Wall Street’s attention in September after achieving a breakthrough on a new drug candidate. It’s a brand-new recommendation from Cabot Early Opportunities Chief Analyst Tyler Laundon.

We added a bear call last week and hope to add at least one more trade, if not more, this week. My plan is to balance out the overall deltas of our current positions by adding a trade, most likely a bull put spread. I’ll be focusing on sector ETFs and individual stocks as the major indices continue to see low levels of volatility.

We locked in another profitable trade at expiration last Friday, bringing our positive trades total for the January expiration cycles to six. Our total returns so far in January are 12.36%.

As for this week, I will be potentially selling more premium in PFE, BITO and possibly a new position or two. Stay tuned for the trade alerts!

It continues to be a good start to the year. Let’s keep it simple, stay mechanical and allow the strategy to do the heavy lifting.

After locking in gains in PFE our total returns now sit at all-time highs of 124.9%. We introduced the portfolio in June 2022 and continue to be impressed by the resilient and consistent nature of the income wheel strategy during all market environments.

We made our second straight successful trade for this earnings cycle last week. We were thankful to take quick profits in Visa (V) Friday morning. All went well as V opened well within the chosen range of our iron condor and, as a result, we were able to take off the trade for a nice one-day gain of 9.9%. But remember, even though these are short-term trades, this is a long-term strategy – a strategy based on the law of large numbers and statistical probabilities.

Each investor operates within their own time horizon. Day traders’ time horizon is the 4 p.m. ET market close, or shorter. Some traders focus on the calendar week, while most hedge fund traders have a month-end time horizon. Mutual funds focus on a quarterly or at most annual time horizon. Financial commentators have their own time horizons, as well. Bombastic TV or live-streaming pundits usually focus on very short horizons – “what has the stock done for me lately” is their mantra. The definition of “lately” can change but usually means “the past few weeks” or “since it stopped going up.”

The market is changing. The risk is shifting from more Fed rate hikes and inflation to a growing possibility of recession in the quarters ahead. The math is changing and so is market rotation.


At the same time, earnings season is here, and we are likely in an earnings recession already. Average S&P 500 earnings shrunk 4% last quarter and are forecast to fall 5% this quarter. Much of that expectation is already reflected in prices and investors will be carefully watching the guidance for future quarters. If that is negative, companies that can continue to grow earnings and buck the trend should be at a premium.

This week kicks off our earnings season, with Wells Fargo (WFC) reporting. There were no ratings changes this past week.

With the arrival of spring vacation week for our kids, we are on a lighter publication schedule, with brief Friday notes (to include earnings) and no podcast on Friday, April 14 and Friday, April 21. Also, the monthly letter will be pushed back a week to Wednesday, May 3. We’ll continue to monitor the holdings list and provide any alerts if necessary.

The market is still like a jar of mixed nuts. Some good, some bad.

Earnings season begins this week as large-cap banks start delivering Q1 results. Across small-, mid- and large-cap stocks (all sectors) earnings estimates have been trending down for several quarters.

It can pay to pay attention to what investment legends are doing to cope in these turbulent times.

Warren Buffett still has a knack for seeking value and a history of going to Japan to find it in times of volatility. Overall, Japan’s Topix index trades at 13.3 times expected earnings, according to S&P Global Market Intelligence. That compares with 18.9 times for the S&P 500.

WHAT TO DO NOW: Continue to play things in the middle, as the on-again, off-again environment remains in place. We are seeing some improvement from our Cabot Tides and Two-Second Indicator, which is a plus, but most of the evidence is stuck in the middle, so we think having a good chunk of cash as well as a few resilient growth names makes sense. We have no changes in the Model Portfolio tonight; our cash position remains just under 50%.

The cannabis sector remains under pressure. But the stock price weakness makes the group a good buy for contrarians because there are plausible catalysts on the horizon.

Let’s be clear. It won’t be easy to buy. It never is, when sentiment is so dark.

Buying right never feels good, as the saying goes. When the right time to buy comes along, you won’t want to, is how technical analyst Walter Deemer puts it.

As widely reported, Jamie Dimon, the 23-year-and-counting CEO of JPMorgan and its predecessor Bank One, recently penned his annual letter to shareholders. The 43-page tome covered topics ranging from the bank’s “Steadfast Principles Worth Repeating” to “Our Serious Need for More Effective Public Policy and Competent Government” along with some impressive numbers about JPMorgan’s financial, operational and share price performance over the decades.

It’s a big week. The March Consumer Price Index (CPI) report comes out on Wednesday. The number may determine the short-term course of the market.

Stocks have trended higher over the past month as the banking situation has so far tempered the Fed without any offsetting crisis. There now seems to be a greater likelihood of a recession later this year, but investors are also pricing in Fed rate cuts in the second half. That’s the dicey part.

This holiday-shortened week was relatively light on news, as investors digested signs of a weakening economy in front of what likely will be a fascinating earnings season.

Next Friday, Wells Fargo (WFC) kicks off our earnings season, likely providing at least some insights, along with those provided by several other major banks that report that day, into the banking industry’s current stresses. Our other banks report later, with First Horizon (FHN) on April 18 and Capital One Financial (COF) on April 27.

The market was impressive last week. The S&P 500 moved 3.5% higher for the week, accounting for nearly half of the better than 7% YTD return. Hopefully the rally has further to go.

Investors love it that the banking issues have had the benefit of tempering the Fed with no apparent offsetting crisis so far. The expected timeline for the Fed to stop raising rates has moved way up, to one more rate hike from what could have been a hiking cycle that lasted the rest of the year.

The big news this week is that OPEC+, including Russia, made the decision on Sunday to cut oil production by 1.16MM barrels per day from May through the end of the year. It appears that OPEC+ wants to keep oil in the $80-$90/barrel range.

Today we are moving shares of Dow (DOW) from Buy to Sell. As the shares have reached our 60 price target, and with no compelling reason to raise that target, we are moving the shares from Buy to Sell. This change will also be made in the Cabot Turnaround Letter.

Moving Kraft Heinz (KHC) to Sell

I will be exiting the Starbucks (SBUX) trade today. I will discuss the trade in greater detail in our subscriber-exclusive webinar at noon ET today, February 3.

The FOMC met this week, and the meeting wrapped up with a 25bps hike, as expected. A subtle hint of what was to come (easy to point out in hindsight) was that the FOMC’s statement removed the reference to inflation being elevated due to supply and demand imbalances relating to the pandemic.

As discussed in our weekly issue, and on our weekly call, I will be taking a position in Starbucks (SBUX) today. SBUX is due to announce earnings after the closing bell today (February 2). The stock is currently trading for 110.83.

SPY continues to rally and has now pushed through our short 415 call strike. As a result, I am going to take off the trade. I will be following up this trade with a few opening trades as we need to start looking towards March expiration for premium-selling opportunities.

Well, I think we all knew the time would eventually come. We are going to close out of our February IWM iron condor as it has reached our stop-loss. This marks our first loss since August 11 and only our second since initiating the Quant Trader service back in early June. If you wish to hold, please be aware of the risks. Remember, trading is a marathon, not a sprint.

We need to bring our deltas back in line as both SPY and VNQ have pushed in-the-money and closer to parity with their respective LEAPS.

We currently own the AAPL January 19, 2024, 130 call LEAPS contract at $54.20. You must own LEAPS in order to use this strategy.

Following up on Catalyst Pharmaceuticals (CPRX) here. This week the company closed the purchase of the U.S. rights to FYCOMPA from Eisai. This is an epilepsy drug that will add revenue and earnings in the current year. FYCOMPA sales in 2022 should be about $136 million.

I will be exiting the Visa (V) trade today. I will discuss the trade in greater detail in our subscriber-exclusive webinar at noon ET today, January 27.

Chevron continues to push higher since we added the position back on January 9. The ongoing advance has pushed our deltas to an almost neutral state. As a result, I want to buy back our calls and immediately sell more premium.

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.