We have officially entered the earnings doldrums, but that certainly doesn’t mean that opportunities won’t present themselves. For instance, this week Micron (MU), FedEx (FDX) and Nike (NKE) announce earnings and offer a decent opportunity for an iron condor. I’ve gone over a detailed iron condor example in the “Weekly Trade Ideas” section below.

We’ve made 39 trades in total with a win ratio of 76.9% (30 out of 39 winning trades).

With the Federal Reserve signaling that the interest rate hiking cycle is over, and there may even be rate cuts in 2024 the bulls cheered this news as the S&P 500 gained 2.5%, the Dow rallied 2.9%, and the Nasdaq added 2.85%.

With the Federal Reserve signaling that the interest rate hiking cycle is over, and there may even be rate cuts in 2024 the bulls cheered this news as the S&P 500 gained 2.5%, the Dow rallied 2.9%, and the Nasdaq added 2.85%.

The Fed’s actions (holding rates steady) and words (seeing three rate cuts next year) has supercharged the broad market this week, keeping our market timing indicators positive while most leaders are in fine shape. We will say that, with the good news out, sentiment has picked up, so we’re still content to move gradually and pick our spots with new buying. Tonight, we’re filling out our position in one name while starting a half-sized stake in a new leader, leaving us with around one-quarter in cash.

Well, I’d call November a pretty good month! The Dow Jones Industrial Average soared by around 2,000 points since our last issue. Wall Street seems positively optimistic that the Fed will begin to lower interest rates mid-year, according to a recent CNBC survey. Also, the risk of a recession continues to decline, with Goldman Sachs saying the probability is now around 15%.

Both of those instances may create a very good market in 2024.

Despite the index returns this year, many stocks are still in a bear market.

Some interest rate-sensitive stocks recently fell to the lowest level since the trough of the pandemic market more than three years ago. But interest rates have likely peaked. And the main reason for the decline is over.

Buying stocks in the throes of a bear market has proven to be a winning strategy over time. Buying stocks after they have already started to climb out of the lows has proven to be a winning strategy sooner.

The timing may be perfect for a rare opportunity to generate much higher returns than can normally be expected from stocks of defensive companies. In this issue, I highlight a defensive stock that had been a stellar performer before inflation and rising interest rates took hold. It is priced near the lowest valuations in its history and has recently been generating upward momentum.

Despite some early-in-the-week wobbles, the bulls were able to rally into the close of the week and again tack on gains. For the week the S&P 500 gained 0.8%, the Dow was unchanged, and the Nasdaq rose by 0.7%.

We continue to see some near-term tremors, but beyond that, the evidence looks pretty great, both from a top-down perspective and, even more so, among leading stocks, which continue to behave themselves, with a lot of controlled pullbacks and tight action among those that have dipped—while many others are still pushing higher. All in all, we’re encouraged, though for the moment we do think it’s best to pick your spots. Our Market Monitor stands at a level 7.

This week’s list has another balanced collection of ideas, with many different sectors and types of stocks. Our Top Pick is one of many turnaround-type retailers that’s cheap, has new-ish management and should have solid growth ahead—and the stock is perking up, too.

We enter the last few weeks of the year with plenty of momentum, and this week’s macro data-heavy slate (CPI and PPI reports, the latest Fed announcement) can only do so much damage to our portfolio on the heels of a very strong couple months. Nearly half our holdings – 10! – are trading at 52-week or all-time highs as of this writing. So today, we take another big swing on a mid-cap biotech newly recommended by Carl Delfeld in his Cabot Explorer advisory.

Given our recent string of losses I thought it would be appropriate to discuss sequencing risk and how important it is to understand how it impacts a high-probability strategy. Sequencing risk is a major component in the world of statistically based, high-probability options strategies – which is why I always emphasize why position size is so important.

The Income Trader service is oftentimes viewed as the tortoise approach. Among many investors today, the slow and steady “tortoise” approach just isn’t sexy. But really, who cares? I certainly don’t, I’m just a nerdy options trader who prefers to sell options with every opportunity, so “sexy” isn’t really in my vocabulary. I care about returns…and more specifically, long-term returns. Returns that offer not only steady growth but sound risk mitigation. And that’s what Income Trader and our income wheel approach offer during both bullish and bearish markets.

We have officially entered the earnings doldrums, but that certainly doesn’t mean that opportunities won’t present themselves. For instance, this week Costco (COST) and Oracle (ORCL) announce earnings and offer a decent opportunity for an iron condor. I’ve gone over a detailed iron condor example in the “Weekly Trade Ideas” section in this issue. Enjoy!

WHAT TO DO NOW: The market continues to improve its standing, with our Cabot Tides now positive and, barring a meltdown tomorrow, a green light is likely from our Cabot Trend Lines, too. Individual stocks remain trickier, especially on the growth side of things, so we’re not cannonballing into the pool. But with things looking better we’re continuing with our path of putting money to work. Tonight, we’re adding a new half-sized position in Las Vegas Sands (LVS), filling out our stake in Academy Sports (ASO), and putting another 3% position into ProShares S&P 500 Fund (SSO). That should leave us with around 50% cash; we hope to deploy more of that in the days ahead.

It is only a month into 2023 but playing safe has not paid off as the Nasdaq 100 (QQQ) is the best-performing U.S. index ETF with a gain of 10.6% thus far. The small-cap Russell 2,000 (IWM) is next, up 9.8%. The Dow Jones 30 (DIA) – which fared the best in 2022 – is up only 2.95%.

The market is doing everything it can so far this year to be unlike 2022. It’s up. And the best performing sectors are cyclical.

So far this year, the S&P 500 is up about 5% and the technology stock-heavy Nasdaq is up almost 10% in just a month. Not only are the indexes higher but they are being driven by last year’s worst performing sectors, technology and consumer discretionary.

The stock market finished January on a strong note which bodes well for the remainder of the year. Despite a rally in the market, I’m adding new ideas to my watch list on a weekly basis. I’m continuing to find plenty of ideas that look attractive on an absolute and relative basis. I look forward to sharing my latest idea in next week’s new issue of Cabot Micro-Cap Insider.

One of the immutable laws of technology investing is that all tech stocks go through the Hype Cycle. Well over a century ago, leading-edge tech stars like railroads went through their boom-and-bust phases. The 20^th century included the notable enthusiasm-and-disillusionment in radio, television, automobiles, copy machine and IBM (its own industry for years) stocks, ending with the exceptional dot-com bubble.

Highly regarded technology research and consulting firm Gartner plots this hype arc in their chart, below. While the rise and fall, and time length, are different for each stock and industry, the chart effectively captures the changes in investor mindset through the cycle. Changes in the investor mindset invariably drive changes in tech stock prices.

The year has certainly started out in fine fashion. The S&P 500 has delivered positive returns for all four weeks so far this year. The S&P is up 6% YTD and the Nasdaq is up 11% YTD, as of Friday’s close.

But earnings have been lousy so far this quarter, with the average S&P 500 company that has reported so far posting -5% earnings growth from last year’s quarter. But the market was expecting that. Investors know there will be a declining economy this year, and the sooner it declines, the sooner the Fed will be done hiking rates.

This week, we comment on earnings from Dow (DOW), General Electric (GE), Nokia (NOK) and Xerox Holdings (XRX). Next week brings reports from Vodafone (VOD), Polaris Industries (PII), M/I Homes (MHO), Meta Platforms (META), Western Digital (WDC) and Janus Henderson Group (JHG).


We also include the Catalyst Report and a summary of the February edition of the Cabot Turnaround Letter, which was published on Wednesday.

Our area was nailed with rain last night, knocking out internet service at our house. After spending a good part of the day skipping around town to get WiFi and doing what I can on a cell signal, my patience with technology is about gone. Coffee shops are great, but where are my mega screens?!

We are just weeks into a year that has so far been better and different than last year.

The S&P 500 is up 4.7% in January after falling 19.4% in 2022. The winners and losers are also different. The best performing sectors are last year’s worst performing, technology and consumer staples. The worst performing sectors are last year’s best performers (with the exception of energy): healthcare, utilities and consumer staples.

Is this a portent of things to come or just a temporary reallocation?

The S&P 500 is off to an excellent start in 2023 and according to Ryan Detrick of Carson, that bodes well for the rest of the year. I’m continuing to see many opportunities in the micro-cap world. The two areas that seem the most interesting to me right now are the biotech and energy sectors.

The Fed-induced rally yesterday has left a few of our positions with deltas that are shorter than we prefer. As a result, I want to buy back our short calls in those positions and sell more premium going out to a higher strike and further out in duration.

Okay, it’s time to ramp things back up again. I want to sell premium for the January expiration cycle and I’m going to start with a bear call spread and hopefully, over the next few trading days, add an iron condor and bull put spread in a few other of the major index ETFs.

The Fed-induced rally yesterday has left a few of our positions with deltas that are shorter than we prefer. As a result, I want to buy back our short calls in those positions and sell more premium going out to a higher strike and further out in duration.

We got into CrowdStrike (CRWD) back in 2019 almost near the stock’s lowest publicly traded price (below 50).

As part of the Income Wheel approach, we allowed our GDX calls to expire in the money at expiration last week. As a result, our shares were “called” away at the price of 26, and we locked in 3.87% on the trade.

With 18 days left until expiration and our IWM iron condor worth $0.24, I want to go ahead and lock in some nice profits. We sold the iron condor for $0.75 just 13 days ago and are now able to lock in over 10% on the trade. If you choose to hold on to the trade, please be aware of the risks.

We want to bring the delta of our position back to “normal” state. In our terms “normal” means a delta between roughly 0.40 and 0.60. As it stands, with TLT rallying as of late, our deltas are near parity.

Moving Shell plc (SHEL) from Buy to Sell

We currently own the IEF January 19, 2024, 85 call LEAPS contract at $19.00. You must own LEAPS in order to use this strategy.

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.

Our BITO 13.5 calls for the November 25, 2022, expiration cycle are essentially worthless. As a result, I want to buy back our BITO calls, lock in our premium and immediately sell more premium.

With the Russell 2000 ETF (IWM) trading for 184.87, I want to place a short-term iron condor going out 30 days. My intent is to take off the trade well before the December 16, 2022, expiration date.

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.