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!

We have some exciting times ahead! All of our Dogs and Small Dogs positions will be closed out prior to the December 29, 2023, expiration cycle and we will once again start anew by adding all the qualifying Dogs for 2024 during the first week of the new year. Stay tuned as I will have more information as we near the end of the December 29 expiration cycle.

Shortly after we add our Dogs and Small Dogs during the first week of 2024, we will begin the process of phasing out of our 2025 LEAPS and into 2026 LEAPS in the passive portfolios (All-Weather and Yale Endowment).

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%.

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%.

This month we’re adding a small company that specializes in software that helps organizations train their employees and the partners they work with.

The company has a market cap of $1.5 billion, is growing revenue by about 25% and throws off a ton of cash relative to its size. Moreover, I rarely see this stock in the media, despite impressive growth and achievements. I think that’s about to change.

All the details are inside this month’s Issue.

Led by the Magnificent Seven, the S&P 500 is a bit overcooked at the moment. Small and mid-caps, on the other hand, are cheap - and appear poised for outperformance in the New Year. So today, we add a mid-cap life sciences company with high upside potential in an emerging area of biology.

I’m an optimist. That quality has served investors well for decades. There are many stocks at cheap prices that will likely be a lot higher in a year or two as a new bull market will emerge. But I don’t believe that the market is on its way to the Promise Land just yet.

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%).

A quick reminder that Cabot will be closed tomorrow and Friday for Thanksgiving. I hope you have a great holiday and enjoy a break from the market.

As far as our portfolio goes there is very little that’s changed since last week.

Last week, we rolled our valuation and earnings estimate table forward by a year, dropping the 2022 estimates and adding the 2024 estimates.

There are a couple of things that I’m thinking about this week.

First, the yield curve is inverted. An inversion of the 10-year – three-month yield curve has predicted all of the last recessions, and so I have high confidence that we will see a recession in 2023.

With that being said, usually, the market performs better in the year of the recession than in the year before the recession (markets are forward-looking!).

As such, I’m relatively optimistic.

Today I am adding $40,000 of our cash to AdvisorShares Pure US Cannabis (MSOS) with a buy limit of 11.45.

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.

Cabot Options Institute Fundamentals is focused exclusively on the Poor Man’s Covered Call strategy, which is a way to collect reliable gains from a relatively simple options strategy, without the substantial up-front cost of a regular covered call strategy.

Macy’s (M) – With a capable new CEO since February 2018, Macy’s is aggressively overhauling its store base, cost structure and e-commerce strategy to adapt to the secular shift away from mall-based stores. Macy’s acceleration of its overhaul shows considerable promise.

As far as today goes, the S&P 600 Small Cap Index has come up against a wall at 1,230, which is where support was in January and February.

Centrus Energy (LEU) shares recovered five points this week to reach 35 as the Department of Energy announced that it and Centrus Energy’s American Centrifuge Operating, LLC will share the $150 million cost 50-50 to demonstrate production of a fuel called high assay low enriched uranium. This is still a buy for aggressive investors.

Today’s CPI reading showed inflation moderating a little (not a huge surprise) and the market has, so far, loved the result. The Nasdaq has been up over 2% in the early going.

As discussed in our weekly issue last week, and on our weekly call, I will be taking a position in Disney (DIS) today. DIS is due to announce earnings after the closing bell today (August 10). The stock is currently trading for 110.60.

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.

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.