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!

With today’s note, we discuss the earnings report from Wells Fargo & Company (WFC) and provide updates on several recommended stocks.

The inflation outlook has certainly moved toward the “less bad” end of the spectrum over the last week. That’s the big-picture reason stocks have been doing well since last Friday. On Tuesday the NFIB Small Business Survey (December data) showed that the percentage of small businesses with job openings is falling, as are the percentage of businesses expecting to increase hiring over the next three months and the percentage planning to raise average selling prices.

Cannabis stocks continue to get weighed down by the SAFE banking debacle. As you recall, late last year legislators failed to approve cannabis sector banking reform called the SAFE Banking Act that would have made it easier for banks to serve cannabis companies.

We’re only a week into the new year, but it’s been a good start for your value stocks. On average, prices of the stocks on the recommended list (excluding ARCO, which we sold last week) have increased nearly 7%. This is a favorable start, both in absolute terms and relative to the 3% jump in the S&P 500 Index.

So far, I like 2023 a whole lot better than last year. At midday on Monday, the S&P 500 is up 3.7% and the Nasdaq is 4.5% higher so far this year. And it hasn’t even been five full trading days yet. Later this week, the December CPI number will come out, on Thursday. CPI is expected to be 6.6%, versus 7.1% in November. Assuming the number comes in at or better than expected, it could be very positive for the market. Falling inflation means the Fed won’t have to be as aggressive and investors could start sniffing out an end to this inflation/Fed conundrum later in the year.

With today’s note, we make changes to ratings on two stocks (Macy’s and GE Healthcare Technologies), discuss the earnings report from Walgreens Boots Alliance (WBA) and provide updates on several recommended stocks.

WHAT TO DO NOW: Remain defensive. Early January is often marked by crosscurrents, and this year is no different, with a few intriguing rays of light popping up—but the market’s trends are pointed down and there remain far more sinkholes than shooting stars among individual stocks. In the Model Portfolio, we’ve shielded most of our money from harm’s way in recent weeks, but a couple of our names have been getting hit with growth stocks of late. Tonight, we’re forced to sell our half position in Enphase Energy (ENPH), bringing our cash position up to 80%. Details below.

U.S. conglomerates, all the rage in the 1970s and into the 1980s, are still alive and kicking though investors prefer a more sector and global approach.

Yesterday, General Electric (GE) completed the spinoff of its healthcare business, GE HealthCare Technologies (GEHC). GE HealthCare, which makes MRI machines and other medical equipment, now trades on Nasdaq under the ticker symbol GEHC.

A terrible year in the market just ended and it is highly likely that this year will be much better. That’s good news. The bad news is that the first part of 2023 may be just like 2022.

The results are in. The indexes returned the following for 2022; S&P 500 (-19.4%), Dow Jones (-9%), and the Nasdaq (-33%). It was the worst year for stocks since the financial crisis year of 2008. Plus, many individual stocks were down far more than the indexes.

Happy new year! Hope you were able to take some time off to re-charge and get ready for the new year. I enjoyed my time off, but December has been a month of sickness for the Howe family. Covid, ear infections, colds – you name it, my family got it. Here’s to a (hopefully) healthier January! This week was another very slow week from a micro-cap news cycle perspective.

This year begins in 2022 form, lower. Although the calendar changed, the issues that have pressured stocks lower over the past month remain. There is still great uncertainty regarding inflation, the Fed, and a recession.

This note includes the Catalyst Report, a summary of the December edition of the Cabot Turnaround Letter, which was published on Wednesday, and earnings from Duluth Holdings (DLTH).

We still have an IWM iron condor open for the October 21, 2022 expiration cycle that currently stands in profitable territory, but given that we are only 45 days away from the November 18, 2022 expiration cycle I want to begin the process of selling more premium.

Today, given the extreme oversold readings we are coming off of from last week, I’m going to open a position in the S&P 500 ETF (SPY), more specifically a bull put spread. I’m giving myself over a 10% margin of error on the trade. I also intend on adding several more positions for the November expiration cycle over the coming days.

The market’s meltdown continues, with the buyers completely on the sideline as just about every stock and sector cracks. The Model Portfolio is already in a highly defensive stance (72% cash coming into today), so we’re not craving more cash, but we’re also not simply going to hold onto things as they melt away.

As part of the Income Wheel approach, we allowed our Coca-Cola (KO) puts to expire in-the-money at expiration last week. As a result, we were issued shares at our chosen put strike of 60.

With the market pulling back again today, our IWM iron condor is nearing our short put strike of 163. We’ve had a good start, with the Quant Trader service outperforming the market by a significant margin.

With the market continuing to have indigestion following the Fed’s 75bps rate hike and higher-for-longer messaging (regarding interest rates), we’re going to trim our position in Toast (TOST) today to reduce the risk of things getting away from us.

Before I get to our PFE trade, I wanted to let everyone know that, per our income cycle guidelines, we will allow our KO puts and WFC puts to expire today (unless we see a rally today). This means that on Monday we will be put shares of both stocks and begin the process of selling calls on both.

Like in our last alert for the All-Weather portfolio, we need to keep our deltas at reasonable levels, and with the recent pullback, we are a bit longer than we would like to be at the moment. Much of the premium has been taken out of our October expiration positions and with 29 days left in the October cycle, we still have plenty of time to add to our premium totals in October by selling more premium today.

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.

In last week’s issue of Cabot Stock of the Month, I introduced you to a new section of the newsletter—ETF Strategies, which combines the portfolios and strategies of the former Cabot ETF Strategist newsletter.

I also created Risk Tolerance classifications: A for Aggressive, M for Moderate, and C for Conservative, for both ETF Strategies and the investments in the Cabot Stock of the Month portfolio.

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.