The market remains in a two-month correction, but as opposed to the sloppy action seen in recent weeks, the sellers are now starting to pounce, damaging even the resilient big-cap indexes. Longer-term, we still believe the next major move is likely to be up, but we can’t ignore what’s in front of us: We’ve been cautious for weeks, and earlier today on a special bulletin, we pared back on two of our current positions, which will leave us with a cash position in the low 50% range.

In tonight’s issue, we give you our latest thoughts on just about everything -- our stocks, the market, the big picture and interest rates, which, after two years, are still one of (if not the) key drivers of the market. There will be a sustained advance that comes out of all this, but we continue to think patience is the name of the game for now.

As part of our ongoing “Core & Explore” approach, today I present three new ETFs for your consideration. These three funds should help you weather the market’s many ups and downs these days. They are designed to remain both in the market and keep flexible to take advantage of new growth opportunities without going overboard.

In the September issue of Cabot Early Opportunities, we look into what this afternoon’s Federal Reserve meeting could mean for the market. Then we dig into five small-cap companies from the industrial, biotech, software and clean energy markets. There’s something for everybody.

Enjoy!

Ahead of the long holiday weekend the market had yet another good week. The S&P 500 gained 1.75%, the Dow rallied 1.5%, and the Nasdaq rose another 1.9%.

This week in an attempt to diversify the portfolio we are adding an energy play.

Stocks chopped up and then down last week, and all told, not much has changed—the market is still in the throes of a two-month correction, with a sideways-to-down intermediate-term trend and few stocks moving in a sustained way on the upside; simply put, there’s little money being made right now. That doesn’t mean we’re in the storm cellar—we’re OK having a few lines in the water and starting some small positions in potential leaders as the odds favor the next big market move being up. But overall, a cautious stance is warranted given the evidence. We’ll leave our Market Monitor at a level 6.

This week’s list has something for everyone, with a variety of sectors and setups represented. Our Top Pick is an old name, but it’s cheap, strong and has an AI infrastructure angle that should keep buyers interested. Try to buy on weakness.

The market has been stagnant for the last month, but that’s not necessarily a bad thing. It could be a nice, long deep breath – in what is historically the market’s worst-performing month – before the next big push in this still-new bull market. But just in case it goes the other direction, today we add a low-risk utility stock that’s having a down year but tends to beat the indexes over time. It’s a longtime favorite of Cabot Dividend Investor Chief Analyst Tom Hutchinson.

Details inside.

We locked in another profitable trade last week, our October 20, 2023, SPY iron condor for a 10.4% gain. We were in the trade for 27 days. As it stands, our overall return is 156.4%, with an average hold time of 21 days. My hope is to extend those gains this week as I intend on locking in, if all goes well, a similar return in our IWM iron condor. Moreover, I intend on adding at least one to two additional trades this week.

We locked in some nice gains prior to expiration last week which brought our total return to 102.2%.

We also allowed our WFC short puts to carry through expiration and since the underlying price of WFC was below our short put strike we were assigned shares of WFC. As a result, we plan on selling calls against our newly acquired shares as we enter the covered call portion of the income wheel strategy in WFC.

The earnings doldrums are upon us, but we still have one potential opportunity this week, most notably a chance for a trade in FedEx (FDX). The company is due to announce after the closing bell Wednesday, so if I do send a trade alert, expect to see the alert around 2 p.m. ET that day.

It was a fairly quiet week in terms of the leading indexes’ performance as the S&P 500 fell marginally, the Dow mostly finished the week unchanged, and the Nasdaq fell by 0.4%.

It was a fairly quiet week in terms of the leading indexes’ performance as the S&P 500 fell marginally, the Dow mostly finished the week unchanged, and the Nasdaq fell by 0.4%.

We’re still playing the seesaw game in the markets—up, down, up, down, etc. I don’t see any need for excess worry; just a little caution that we buy the right stocks. I’m still very long-term bullish, and why not?

The economy continues to strengthen; 79% of the companies in the S&P 500 Index reported positive earnings surprises for the second quarter, and the third quarter looks even better; home building continues to be strong, although low inventory levels continue to pressure resales. Home prices appear to be stabilizing, and employment remains strong.

The soothsayers seem to think that the Fed will keep rates steady at its next meeting, and the probability of a recession has fallen to 16%. What’s not to like?

It’s been a furious rally so far this week. It’s only lunchtime on Tuesday. But I’ll take it.
September was an abysmal month, in a rotten third quarter, in an awful 2022. Investors can’t contend with persistent high inflation, a hawkish Fed, and a recession. The most recent selloff took just about every stock down with it.

There’s no disputing that gold has been one of this year’s most “boring” markets. What started as a promising New Year—with investors almost unanimously expecting inflation to skyrocket (thereby boosting gold’s appeal)—has mostly seen rising interest rates and a strengthening dollar consistently undermine interest in the metal.

The largest lender in the U.S. is now using blockchain. The bank also just announced they plan to hire about 2,000 more software developers worldwide by the end of the year according to Lori Beer, the chief information officer. JPM is making huge investments in computer science while other competitor financial institutions have lagged. JPM plans to spend $14 billion dollar on technology this year.

This note includes the Catalyst Report, a summary of the October edition of the Cabot Turnaround Letter, which was published on Wednesday, and bullet points of our podcast.

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.

Stocks are having another terrible day today, with investor fears building that the Fed will push the economy into a deep recession. As of 2:10 pm, the Dow is off 656 points and the Nasdaq is plunging 409 points.

The market tried to stage a small rally yesterday. But the combination of a consistently hawkish Fed, rising concerns of a global recession and increased risk of something going sideways in the financial markets (witness the Bank of England launching an emergency government bond buying program) is making it tough for the market to get off its knees. Stocks are selling off again today.

The market hit a new bear market low. That means that the summer rally was indeed just a bear market rally. And stocks may go lower.

Two things spooked investors, persistent inflation and a consequentially persistent Fed. After four Fed rate hikes, a bear market, and two straight quarters of negative GDP growth, inflation remains sky high and barely budging. The Fed will have to remain hawkish for longer.

The Fed insinuated that it is willing to drive the economy into recession, or deeper recession, to tame inflation. That makes it increasingly likely that only a hard landing can bring prices down. The economy is likely to weaken in the months ahead, dragging corporate earnings down with it.

Greentech is in a zone of support. While it has declined about 14% in the past two weeks, which is discouraging, we’re seeing buying coming in at current levels, where, technically, is an area we want to see bulls pushing back. Overall, the Greentech Timer is telling us to be cautious – it’s below all three of the moving averages we watch and on Friday, trading broke support from an earlier gap higher. The area of real concern for our sector would come with another 10% decline from today’s levels.

As I think about where we are in the economic cycle, I think financials should be relatively well positioned.

The awful financial market conditions continue to deteriorate. As everyone knows, the domestic stock market ticked below its midsummer low and is now down over 23% from its November 2021 peak. Stock prices in developed country markets have fallen in local terms just as much if not more that the major U.S. stock indices. Emerging market returns (in local terms) have slid 21% YTD. With the awe-inspiring gains in the U.S. dollar, up 19% YTD, global stock returns for American investors have been downright dismal.

To kick things off to better understand the world today, I want to start with recent comments by John Paulson. John made his fortune shorting subprime mortgages during the 2008 housing bubble.

Here we highlight comments on gold because it is one of the world’s most traded and highly sought-after commodities. Gold does share traits with Bitcoin, and BTC should trade similarly to gold over the next 10 years.

The stock market continues its downward slide as investors started to fully appreciate the pace and scale of rate hikes by central banks around the world. Still, several of our companies provided noteworthy updates, noted below and in our podcast.

As discussed in our weekly issue last week, and on our weekly call, I will be taking a position in Caterpillar (CAT) today.

Geothermal energy producer Ormat Technologies (ORA) closed Friday at 86.54, above our target for a breakout. We are shifting the stock from ‘Watch’ to ‘Buy’ for Monday.

Let’s Ring The Register With GO. MTDR Moves To HOLD

We currently own the DBC January 19, 2024, 22 call LEAPS contract at $10.50. You must own LEAPS in order to use this strategy. If you wish to enter the position and are uncertain about which LEAPS to purchase, please refer to the reports section of your subscriber page, or our latest subscriber-exclusive webinar in which I go through the process, step by step, of entering a new position on an already established position.

I’ve decided to go ahead and buy back our short calls in GLD, DBC, VNQ and VTI for the opportunity to sell more premium in September. I will be sending the trades in two separate alerts to make it a little more manageable. I’ll start with GLD and VTI in this alert…

With 22 days left in the August 19, 2022 expiration cycle we are able to lock in well over 50% of the original premium sold in GLD back on July 8.

MSFT opened the day within our range of 227.5 to 270. However, MSFT has pushed higher throughout most of the day and has hit our stop-loss. As a result, I am going to exit the trade for a small loss. I don’t want to take a what is now a small loss and turn it into something larger. I will discuss the trade further in our upcoming subscriber-exclusive webinar, at noon ET this Friday.

As discussed in our weekly issue last week, and on our weekly call, I will be taking a position in Microsoft (MSFT) today.

Microsoft is due to announce after the closing bell today.



Iron Condor Earnings Trade in Microsoft (MSFT)

In today’s trade alert I want to sell cash-secured puts in JPMorgan (JPM).

I want to close out our IWM iron condor today for $0.34.

AXP looks to open the day within our range of 134 to 157.5 and, per the mechanics of the strategy, I want to take the trade off the table. I will discuss the trade further in today’s subscriber-exclusive webinar, at noon ET.

Our WFC puts for the July 29, 2022, expiration cycle are essentially worthless. As a result, I want to buy back our WFC July 29, 2022, 35 puts for $0.02, lock in a decent profit and immediately sell more premium. I’m only going out 29 days to the August 19, 2022, expiration cycle. I’ll sell even more put premium in September if all goes well.

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.