Somewhat quietly, the Dow has rallied eight straight days, and is leading the market higher as of late. Such is the rotation of the market, especially during earnings season.

For the week the S&P 500 gained 1.4%, the Dow rallied 1.75% and the Nasdaq gained 1%.

There’s no doubt the evidence has improved during the past three weeks, with the major indexes living above their 50-day lines, the broad market returning to good health and with some leadership names perking up, too. Of course, that doesn’t mean it’s perfect out there—defensive-type indexes and stocks have been outperforming, earnings season has been very tricky and we’re even starting to see some hot and heavy action in speculative names, which usually isn’t a great sign. All in all, the evidence is certainly more good than bad, so we’ve extended our line a bit but are also looking to be “pulled” into a more heavily invested position should more leadership names emerge. For now, we’ll leave our Market Monitor at a level 7.

This week’s list has something for everyone, with a lot of charts showing power, usually following earnings. For our Top Pick, we’re going to the cyclical side of the market, with a name that has out-of-this-world earnings and is just emerging from a tight area.

It’s another dreaded inflation week, yet there’s not much dread in the market right now, considering the S&P 500 is up 3.75% in May and the Dow is off to its best winning streak in May ever (!). Still, a “hot” CPI or PPI number this week could prompt another pullback like we saw in April, so this week we’re playing it safe by adding a reliable, large-cap, dividend-paying healthcare stock. It’s been a longtime favorite of Cabot Dividend Investor Chief Analyst Tom Hutchinson.

Details inside.

Markets have continued to improve, and so have economic statistics. Housing price increases—while slowing somewhat—are still on the rise, with the Case-Shiller Index posting a 7.3% increase in prices for the month.

ADP employment rose to 192,000, higher than the 183,000 expected. Job openings declined just a bit, to 8.5 million from 8.8 million last month. And the unemployment rate edged up from 3.8% to 3.9% in April.

As many analysts focus on inflation and the job market, they miss that earnings per share for companies in the S&P 500 for the first quarter now look to be up 5.2% from a year earlier, according to FactSet. Since profits and profit growth are the lifeblood of an economy and stock market, it pays to watch them closely.

For this week’s new idea, we go to a Canadian-based company focused on a different resource and technology crucial to North America and beyond.

The market has rallied for more than a year in the happy space between inflation and recession. But that dynamic is unlikely to persist. Amid persistent inflation, it is likely that the market will have to contend with high interest rates or a faltering economy. Each one is problematic.

In a flatter or faltering market, dividends provide a bigger part of total returns. Let’s get ahead of the curve and get a big fat yield.

In this issue, I highlight a stock with a massive dividend yield that has shown good price stability for several years. The company can also thrive amidst inflation and high or rising interest rates and can provide a high income return even if the market struggles through an inflation/recession catch-22.

Last week was full of ups and downs for the market, as the inflation/economic story continues to swing with every data point. And while there was volatility, by week’s end the S&P 500 and Nasdaq had risen marginally, while the Dow had gained 1%.

Last week was another constructive week, with the major indexes surviving some early volatility to finish the week higher—and with more leading (and potential leading) stocks perking up as they round out multi-week launching pads. It’s pretty obvious the intermediate-term evidence has improved during the past couple of weeks, though we wouldn’t say it’s all clear out there, as the major indexes and growth measures are moving into the thick of resistance, and this week brings an avalanche of earnings reports from key stocks, so it’s still very much a day-by-day process here. Even so, we always go with what’s in front of us—we’ll nudge our Market Monitor up to a level 7 and could go higher if more individual names kick into gear.

This week’s list has a bunch of recent earnings winners, some of which are out to new highs, while others are setting up. Our Top Pick is one of the former that has a great near- and longer-term outlook in the aerospace and defense area.

The choppy market waters of April have given way to much calmer seas through the first week of May. In the grand scheme of things, the damage (4% drawdown in the S&P 500) was limited, and the bull market remains very much intact. It pays to be an optimist, especially in bull markets. So today, we add another growth-y name (with an AI twist, of course) that has become rejuvenated and recently caught the eye of Cabot Early Opportunities Chief Analyst Tyler Laundon.

Details inside.

Last week was full of ups and downs for the market, as the inflation/economic story continues to swing with every data point. And while there was volatility, by week’s end the S&P 500 and Nasdaq had risen marginally, while the Dow had gained 1%.

Last week was full of ups and downs for the market, as the inflation/economic story continues to swing with every data point. And while there was volatility, by week’s end the S&P 500 and Nasdaq had risen marginally, while the Dow had gained 1%.

The market has hung in there during the past couple of weeks, which is good to see, but there hasn’t been enough strength — from the major indexes or from growth stocks — to tell us the buyers have retaken control. At the same time, nothing has changed with the big picture, either, which leaves us with the same thoughts we had two weeks ago: Right now, it’s best to be cautious as the correction plays out and as earnings season goes along, but you want to be prepared to move when the tide turns back up.

For our part, we’re holding a good chunk of cash and standing pat tonight, but we have an expanded watch list as we monitor earnings season for signs of future leadership.

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.

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.

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.

“Don’t fight the tape” is a famous expression that I’ve learned to appreciate.

I don’t know who coined the expression, but it refers to the practice of not going against the prevailing trend or momentum of the market.

The phrase emphasizes the idea that it is generally unwise to take positions that oppose the direction of the overall market trend.

Here in New England, the weather can change quickly. A sunny morning can seemingly without warning turn into a rainstorm by the afternoon. Not that long ago, we had three seasons in a single day – snow in the morning, followed by rain, then summer-like temperatures by three in the afternoon. There’s an old saying, “If you don’t like the weather, wait a few minutes.”

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.

This past week, none of our companies reported earnings and there were no ratings changes. Shares of ESAB Corp (ESAB) are approaching our 68 price target, so we continue our review of this recommendation. The next earnings report is from Walgreens Boots Alliance (WBA), scheduled for June 27.

Cabot Options Institute Quant Trader is focused exclusively on creating consistent returns using high-probability options strategies including bear call spreads, bull put spreads, iron condors and more. Whether you have questions about the strategies, or even about setting up your account, or how to make your own trades, Andy will answer all of your questions

The big news this week was, of course, that the FOMC decided to pause and not hike interest rates at the June meeting. But as expected they suggested that a couple more 25-basis point hikes are in the cards throughout the rest of the year.


It feels like this “we want to keep you guessing” messaging is partly due to wanting to see how more data comes in and partly to keep investor expectations in check. The latter seems especially relevant given the S&P 500 just moved into a new bull market and AI enthusiasm has pushed a number of the MegaCap stocks to new highs.

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.

Cannabis stocks are about to make a big move over the next several weeks. This is a good trading opportunity.

What is going to send the group higher?

The Senate should take significant steps to advance key bank sector reform that would help cannabis companies, say lobbyists.

As part of the Income Wheel approach, we allowed our GDX puts to expire in the money at expiration last week. As a result, we were issued shares at our chosen put strike of 29.

I will be exiting the Home Depot (HD) trade today.

As discussed on our weekly call today, I will be taking a position in Home Depot (HD). HD is due to announce earnings before the opening bell Tuesday (February 21). The stock is currently trading for 315.41. The reason I am placing the trade today is due to the market being closed on Monday, so this is the only time we can get in prior to the announcement. The earnings date is also the same for WMT, but as I explained on our call earlier today, I do not want to have two open earnings-based positions carry through the long weekend so I will not be trading WMT for this earnings cycle.

Exscientia (EXAI) is down about 10% this morning.

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.

As a reminder, this trade is for the CVX position in the Growth/Value Portfolio, not the CVX position that resides in our Dogs of the Dow Portfolio. I have a CVX position in both, as both portfolios are looked at as separate entities to keep things mechanical and consistent. However, for most subscribers, it is unnecessary to have double exposure. Just understand that I will be treating each CVX position as two separate entities. I hope this clears up any confusion.

I am buying back out short calls today and immediately selling more premium. The underlying stock position is up 7.06% since we initiated the position. Our CSCO position is up 19.42% over the same time frame.

NerdWallet (NRDS): Sell A Quarter and Hold the Rest

Moving Conduent (CNDT) to Sell

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 Momentum 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 Momentum Trader features.