We took our first loss since early July and, admittedly, I thought we were in for a nice return. The five-day, snapback rally of 6%+ last week caught everyone off-guard. Yes, we all knew we were in short-term oversold territory, so a push higher was anticipated, but certainly not on the magnitude of 6%+.

At the time of the trade, with 21 days left until expiration, our probability of success on the trade was 86.76%.

Oh boy, if things hold at current levels, or even push back a tad, we are in store for some nice returns across the board. In fact, this could be one of our more profitable periods over the next few weeks.

I intend to add one more position to the mix this week, so be on the lookout for a trade alert or two coming your way early this week.

Sometimes the best trade is the one not placed. While we’ve seen a few slow earnings cycles for trading, we never want to force trades. As always, opportunities will pick up. Until then, I still expect, well hope, that we will have 6 to 7 trades under our belt before the earnings season is behind us in a few weeks. And this week is a slow one, with DIS and WYNN at the top of the list. But the following week, the last “big” week of earnings, brings on big retail as Home Depot (HD), Walmart (WMT), Target (TGT), among several others, report. The potential opportunities are there, it’s just a matter of what the market is giving us at the time and if it’s enough to meet our criteria.

How quickly the market can change directions as one week we are on the verge of a steep decline, and the next week the indexes explode higher. This last week fell into the big winner camp as the S&P 500 gained 5.35%, the Dow rallied 5.07% and the Nasdaq added 6.61%.

How quickly the market can change directions as one week we are on the verge of a steep decline, and the next week the indexes explode higher. This last week fell into the big winner camp as the S&P 500 gained 5.35%, the Dow rallied 5.07% and the Nasdaq added 6.61%.

Nothing has officially changed with our market timing indicators, so we remain in a very cautious stance, but the wear-you-out bear phase of the past couple of years (and the sharp declines of the past three months) has had many secondary indicators (breadth, sentiment, etc.) in high-reward positions, and this week’s strength is certainly intriguing. We’re not jumping the gun in any major way, but we are adding one half-sized position in a strong actor and have our antennae up to see if this rally can finally be the real deal.

In tonight’s issue, we review our remaining positions (most of which have popped nicely), our overall market thoughts (including some rays of light from our Two-Second Indicator) and go over many high-potential stocks should the bulls continue to press forward.

This month we’re adding a small company that specializes in the opaque and inefficient market for selling surplus and salvaged goods.

The company has a market cap of just $580 million and is growing revenue and EPS by double digits. It’s an interesting setup, especially as government agencies and corporations increasingly look to save money and achieve sustainability goals.

All the details are inside this month’s Issue.

The Federal Reserve yesterday maintained its benchmark interest rate while leaving the door open for further action as officials work to bring inflation back to the central bank’s 2% target. This makes sense, though markets are still a bit on edge as further increases are a possibility.

But today, we take a big swing with an aggressive stock that combines biotech with artificial intelligence - and is trading well off its highs.

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.

There’s not much new to say when it comes to the market—just about all of the primary evidence remains bearish, and interest rates are still in a firm uptrend, too. There are a growing number of secondary measures that are flashing green, effectively saying a solid bounce (and maybe more) should be coming soon. Thus, we’re staying alert and keeping a list of resilient stocks and sectors, but at the risk of repeating ourselves, we have to see the buyers show up for more than a few hours to start thinking investor perception is truly changing for the better. We’re leaving our Market Monitor at a level 4.

This week’s list has more than a few familiar names, including some initial earnings winners. Our Top Pick is a steady performer that also is showing great growth thanks to both of its top-selling brands—and the stock just emerged from nearly three months of chopping lower on its report. Try to buy on dips.

The indexes are hovering perilously above their May lows, with the S&P 500 and the Nasdaq entering correction territory (-10%) last week. And this week, we’ll hear from the Fed again (gulp), the October jobs report comes in, and we’re still in the heart of earnings season, with Apple (AAPL) being the headliner. Spooky season indeed!

To prepare for all scenarios, this week we’re selling out of a couple laggards and adding a well-known retailer that’s actually in an uptrend. Mike Cintolo recommended this retailer in Cabot Top Ten Trader last week, in fact.

Details inside.

There was little to no value left in the SPY 452/457 bear call spread, so we thought it was best to take our profits off the table and establish another bear call spread to protect our 408/403 bull put spread. One thing is certain: We will have to be nimble as we approach the November 17, 2023, expiration cycle. With only 18 days left until expiration, time decay is working in our favor. A short-term move to the upside, off oversold levels, should allow us to take our bull put spread off for a small profit. A rally should also “hopefully” lower implied volatility in SPY which should help our newly added bear call spread as well. As always, price action will be the final determinate.

What a difference a few weeks can make. The S&P 500 has moved up 15% from the low of October. Have we turned the corner on this bear market?

The main catalyst is a slower-than-expected inflation report. While still unacceptably high, inflation showed real signs of slowing in October. That means the Fed could be done hiking rates sooner. The chief cause of this bear market, rising inflation and a hawkish Fed, show signs of abatement.

It’s a furious rally. The market is on fire. Last week’s inflation report ignited a surge that might last longer. Let the good times roll (for now).


October inflation numbers were reported last week and both top-line CPI and core inflation numbers were lower than expected. It reignited hope among investors that inflation has peaked and is on the decline and the Fed will stop raising rates sooner than previously expected.

Following our demoralized and never-changing, four-word question of “are we there yet” came worthless responses like “soon enough,” or “sometime later,” “we’re getting closer.”

This week’s update includes commentary on earnings from Adient (ADNT), Berkshire Hathaway (BRK/B), Brookfield Reinsurance (BAMR), Elanco Animal Health (ELAN), TreeHouse Foods (THS), Viatris (VTRS) and ZimVie (ZIMV).

The market boomed today after a tamer-than-expected inflation report, with the Dow exploding higher by nearly 1,200 points (3.7%) and the Nasdaq surging 761 points (7.3%).

This week the cryptocurrency market is in absolute turmoil as one of the biggest exchanges, FTX, is insolvent. This is bleeding into equity markets too.

It’s been a tough market for covered calls. Although the market has rallied off the low, call premiums are subdued because investors are less willing to bet on higher prices in the future with still high inflation, a hawkish Fed, and a looming recession.

Many of the more successful positions were called away at options expiration as they exceeded the strike price. But in hindsight it was beneficial to take those profits as well as generate a high income. Many of the remaining portfolio positions left are more cyclical stocks that have fallen below the purchase price. Several more defensive positions have since been added to the portfolio.

Well over two decades ago, I oversaw the investment strategy for a large branch office of a major investment management firm. Our clients were flush with gains from a decade of tech mania – and highly reluctant to shift from their winning strategy. A major challenge was convincing clients to stay invested in stocks but step aside from high-flying dot-com stocks.

This week’s update includes commentary on earnings from Conduent (CNDT), ESAB (ESAB), Gannett (GCI), Goodyear Tire & Rubber (GT), Holcim (HCMLY), Ironwood Pharmaceuticals (IRWD), Kaman (KAMN), Molson Coors (TAP), Organon (OGN), Volkswagen (VWAGY), Warner Bros Discovery (WBD) and Western Union (WU).

Seatmaker Adient (ADNT) reported this morning with encouraging results – we’ll include more detailed commentary next week.

Next week, TreeHouse Foods (THS), Viatris (VTRS), Elanco Animal Health (ELAN), ZimVie (ZIMV), Brookfield Re (BAMR) and Toshiba (TOSYY) report earnings.

Centrus Energy (LEU) was steady this week as Congress seeks another $1.5 billion in a government funding bill to boost domestic supply of uranium to offset lost Russian fuel.

Ford (F) shares rose 7% this week as its October U.S. sales declined by 10% but electric vehicle (EV) sales rose nearly 120% year over year. It now claims to be the #2 EV seller in America behind Tesla.

DigitalOcean (DOCN) delivered Q2 results yesterday that slightly missed on revenue but beat by a good margin on EPS. Revenue was up 29% to $133.9 million (missed by $600K) while EPS of $0.20 beat by $0.10. Full-year revenue outlook was left unchanged, but profit outlook was raised as management has, and will continue to, rein in spending.

Waking up today to more rumors that Avalara (AVLR) is going to be sold to Vista Equity Partners wasn’t too surprising. Speculation had been swirling for weeks. But when the implied takeover price of 93.5 was announced anybody that follows this company did a double take. Was there an error in the press release? AVLR closed at 95.6 last Friday.

We will finally be initiating a position in our active portfolios (Buffett, O’Shaughnessy) this week. Stay tuned!

Cleveland-Cliffs (CLF), North America’s largest flat-rolled steel and iron ore pellet maker, just reported mostly upbeat second-quarter earnings.

Procept BioRobotics (PRCT) beat expetations yesterday, delivering Q2 revenue of $16.7 million (+97%) and giving full-year upped guidance of $66 - $68 million (a $7 million increases and compares to consensus of $61.6 million).

Earnings Recap: ABNB, SPT, FSR, AXNX, ARIS

Ingles Market (IMKTA) reported Q3 results this morning with revenue rising 14% to $1.46 billion and diluted EPS (for class A shares) dipping 6% to $3.57. Management citied rising fuel and food costs, as well as supply chain issues and labor costs as crimping gross margin.

Sprout Social (SPT) beat Q2 expectations on the top and bottom lines. Revenue grew 37.4% to $61.4 million (beat by $1.09 million) while EPS of -$0.04 beat by $0.02. Full-year guidance of $253.9 - $254 million is slightly above $252.7 million and implies growth of over 35%.

It’s not 1999 out there, but the market and individual stocks continue to repair the damage from the past few months. Today, we’re going to add a half-sized stake in Enphase Energy (ENPH), leaving us with around 70% in cash.

I will be exiting the SBUX trade today. I will discuss the trade in greater detail in our upcoming subscriber-exclusive webinar, at noon ET this Friday.

TransMedics (TMDX) reported yesterday afternoon with revenue beating while EPS came in a little light. Revenue rose 150% to $20.5 million (beating by $4.2 million) while GAAP EPS of -$0.41 missed by $0.06. Big picture, this was a good quarter and adds to the positive momentum the company showed last quarter.

Starbucks (SBUX)
As discussed in our weekly issue last week, 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 (August 2). The stock is currently trading for 84.65.

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.