After two-plus months where sellers really couldn’t make a dent in the market, last week was a change, with the major indexes down and, more important to us, many growth stocks decisively cracked near- to intermediate-term support. On the flip side, the vast majority of the top-down evidence remains positive, some growth names are holding their own and a bunch of industry, energy, transport and other cyclical names are still acting fine. Put it together and we think it makes sense to pull in your horns a bit for now, but we’re also not selling wholesale, as the odds continue to strongly favor the market (and many leaders) working its way higher once this selling squall passes. We’re moving our Market Monitor down to a level 6.

Interestingly, despite the market’s hiccup, it wasn’t hard to find a bunch of solid charts (and some solid setups) in a variety of sectors, as you’ll see in this week’s list. Our Top Pick is a cookie-cutter retailer that looks to have finally emerged from a long bottoming effort.

The new bull market encountered its first real hiccup last week, as second-quarter earnings season hasn’t been kind to growth stocks in particular – even ones that blow estimates out of the water. So, a few of our stocks retreated after earnings, only one of which was enough to warrant selling. I view most of the earnings-induced pullbacks as buying opportunities. And today, we add a stock that has something for everyone – it’s a big-cap technology company with an artificial intelligence tilt, plenty of momentum and it pays a dividend. It’s a longtime holding of Cabot Dividend Investor Chief Analyst Tom Hutchinson.

The S&P 500 and every other major index finally decided to take a reprieve last week. The pullback not only helped our August 462/466 bear call spread move into profitable territory, it also led to a return in implied volatility (IV) which has a direct impact on the options premium we sell. Now, with volatility once again at reasonable levels, we are greeted with far more opportunities to sell options premium. The question is, how long will it last?

Our good fortune continues!

Last week we locked in our fourth straight gain for returns of 25%. Our total win rate now stands at 75.7% (25/33 winning trades).

With a win rate of just 60% (9/15 winning trades) in 2022 and total returns reaching a paltry 8.1%, our win rate in 2023 stands at 88.9% (16/18 winning trades) with total returns now reaching 75%. What a difference a year makes! Hopefully, our good fortune continues, and it should if we continue to stick with the mechanics and, more importantly, a disciplined set of risk management guidelines, starting with appropriate and consistent position size.

Last week was the first week in what feels like months that the sellers really took control. And while it was hardly a disaster in terms of the indexes as the S&P 500 fell 1.3%, the Dow lost 1.11% and the Nasdaq declined by 2.85%, the pain was worse in individual stocks, many of which fell hard on earnings.

Last week was the first week in what feels like months that the sellers really took control. And while it was hardly a disaster in terms of the indexes as the S&P 500 fell 1.3%, the Dow lost 1.11% and the Nasdaq declined by 2.85%, the pain was worse in individual stocks, many of which fell hard on earnings.

Not too much to report this week as we simply allow our August positions to erode in value, which as options premium sellers is a good thing. We enter earnings season this week, so I fully expect to add several positions to the portfolio over the coming weeks. We currently have six open position with the intent of getting up between eight and 10.

This month we’re digging into an emerging software star that specializes in helping brands communicate with consumers like you and me.

The details behind the technology are a bit technical. But if you’ve noticed an uptick in personalized emails and text messages letting you know it’s a good night to get takeout, or that those shoes you’ve been pining for are back in stock, you get the picture. 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.

Thank you for subscribing to the Cabot Value Investor. We hope you enjoy reading the July 2023 issue.

Almost like an annual rite of passage, major banks reported their Federal Reserve stress test results last week. All major banks passed, in that their capital levels were in excess of the minimum requirements under the Doomsday Scenario conditions outlined in the test assumptions. We’re not the biggest fans of these tests, for reasons outlined in our monthly letter.

Citigroup remains a riskier bank relative to other majors, but also has a higher return-potential share valuation, plus a 4.5% dividend yield to reward patient investors.

The major indexes all closed last week near their highs, which is one big factor keeping the top-down evidence very bullish; nothing has changed with our big picture positive thoughts. That said, right now, we don’t think the situation is as strong as the indexes suggest—just looking at a variety of names, it’s clear many are consolidating even as the S&P and Nasdaq tested new high ground late last week. Again, we’re not saying that’s a big bugaboo, but right now, we continue to think being more discerning when looking for entry points makes sense, as does pruning some laggards if you have them. We’ll keep our Market Monitor at a level 7.

This week’s list has something for everyone, with a decent amount of cyclical exposure but also some true blue growth names as well. Our Top Pick is helping to lead a new group move in metal stocks in general (and copper in particular).

Another interest rate hike and negative second-quarter earnings growth have done little to slow the bull market rally or investor confidence, so this week we add a “Bull Market Stock” to take advantage of the strength. It’s a term coined by our Mike Cintolo, so naturally, today we add Mike’s favorite Bull Market Stock, one he recently recommended to his Cabot Top Ten Trader audience, a company that benefits directly anytime there’s a bull market and the big institutions are buying stocks hand over fist.

We have three ‘buys’ and a ‘drop’ from our Watch list this week.

Greentech is looking its most bullish in nine months, as the market are heartened by the Inflation Reduction Act and its $390 million support for U.S. clean energy efforts. The act still has to go be passed by the House of Representatives, but that is probably a rubber stamp after overcoming the high hurdle of the split Senate.

The market is having a big day today. July CPI came out and showed moderation in inflation at 8.5% versus 9.1% in the prior month. Core inflation, which excludes volatile food and energy prices, was 5.9%, the same as last month.

The lower CPI number was widely expected as gasoline and other commodity prices have come down significantly amid the recession fears. But it was still lower than the expected 8.7%. Core inflation didn’t go down, but it didn’t rise either, suggesting a possible leveling off.

Investors seem to have abandoned commodity gold and the shares of gold miners like Barrick Gold. The commodity gold price has slipped 11% from its recent peak of $2,043/ounce while Barrick’s shares have tumbled 37% since reaching nearly $26/share earlier this year.

Cryptocurrency markets have had a very good month led by Ethereum-based projects. Our crypto portfolio of Ethereum (ETH), Polygon (MATIC), and Ethereum Name Service (ENS) are all performing very well, and this trend is expected to continue.

This note includes our review of earnings from Adient (ADNT), Conduent (CNDT), Gannett (GCI), Goodyear Tire & Rubber (GT), Ironwood Pharmaceuticals (IRWD), Kaman Corporation (KAMN), Molson Coors (TAP), Organon & Co. (OGN), Vodafone (VOD), Western Digital (WDC) and Western Union (WU). Next week the deluge tapers with six companies reporting.

There were no ratings or price target changes this week.

The major indexes continue to act well in the wake of our Cabot Tides buy signal, which is clearly a good thing. That said, the vast majority of action remains in stocks that are buried on their charts, while those that acted resilient in recent months are mostly just sitting around.

This market is having quite a rally. The S&P 500 just had one of the best months ever in July, up 9.1% for the month, and is currently up more than 12% from the June low. Will the good times last?

Investors are sniffing an end game to the misery of ever-rising inflation and an ultra-hawkish Fed that has been dogging the market all year. The market tends to anticipate six months or so into the future. By then, it sees inflation under control and a Fed that is done hiking rates and maybe even talking about easing again.

This was a quiet week, and so I’m going to use my introduction to share an update on Cogstate (COGZF), which reported preliminary fiscal 2022 results.

What a July! The S&P 500 moved 9.1% higher for the month, making it the best month since the first pandemic recovery month in 2020. It also closed up 12.6% from the low in June.
Is this a bear market rally or the beginning of something beautiful?

Cryptocurrency markets are rebounding significantly, led by our investments in Ethereum (ETH) and ETH-based projects.

Both Polygon (MATIC) and Ethereum Name Service (ENS) are performing very well.

After a stellar performance in 2020 and a so-so 2021, gold has been one of this year’s biggest disappointments. After a promising rally in the first quarter, gold fell 17% from its March peak of $2,050 an ounce to $1,700 just two weeks ago.

But the decline looks like it may have finally ended in a classic “washout” with small investors running away while market-moving commercial players have lately jumped in as buyers—potentially good news from a contrarian perspective.

Sell Silvergate Capital (SI)

The market’s implosion is continuing today, with the indexes hitting new lows and many individual stocks in freefall. The selling is getting emotional, and the conditions are in place for some sort of low in the market soon, but those secondary indicators have had no effect in recent days.

Our stop-loss mark on Advanced Water Systems (WMS) was tripped Friday, and with its weaker open today, we’re recommending selling.

As we march toward a well-deserved weekend, the market is looking to hold support (S&P 500 holding up so far while Nasdaq has cracked a little). There’s no sugarcoating it – this has been a horrific week. But if there is a glass half full perspective it’s that when everybody is bearish it just might be time to start buying.

Procept BioRobotics (PRCT) delivered another “beat and raise” quarter after the close yesterday (third since going public) with revenue up 97% to $14.2 million ($2.1 million beat) and GAAP EPS of -$0.39 beating by $0.10.
Pretty much everything was good, starting with a $4 million increase to full-year guidance, which now sits at $58 - $62 million (+68% - 80%). Hospitals report second and third urologists are starting to use systems (i.e., expansion within hospitals) and also using the robots on smaller prostates (i.e., market expansion). In some cases, Aquablation is becoming the standard of care.

The shine from the Fed’s press conference yesterday came off early this morning and it’s turned into an ugly day. It’s another one of those days (we’ve had too many this year) where it feels wrong to be a buyer and wrong to be a seller. Classic bear market.

The market is mostly down this morning, but its growth stocks that are again unraveling—as of 11:15 am EST, the Dow is up 18 points, but the Nasdaq is down 173 points and growth funds are down much more than that.

Revolve (RVLV) beat on both the top and bottom lines. Revenue of $283.5 million was up 58% and beat by $26.7 million. GAAP EPS of $0.30 was flat with the year-ago quarter and beat estimates by $0.03, despite a 28% increase in the effective tax rate. Gross margin was up almost half a percentage point to a record 54.5% despite higher freight costs.

This morning we learned via an SEC filing that Shutterstock (SSTK) CEO Stan Pavlovsky has voluntarily resigned from his position as CEO and from the board of directors. He notified the company on April 27 and his resignation is effective today. The news was just made public today. The board has appointed current Executive Chairman and former CEO Jonathan Oringer as Interim CEO. Mr. Oringer was the founder of Shutterstock in 2003.

Silvergate Capital (SI) reported Q1 2022 results yesterday morning and held a conference call later in the day. Digesting the results took some time but at a high level the trends are very solid, despite a somewhat messy quarter for crypto markets. Here are the main bullet points.

The market’s decline in April was ugly but under control, but the end of last week and today have seen bigger air pockets emerge—not only have the major indexes fallen sharply, but other strong areas (like commodities) and safe havens (consumer staples) have come under pressure.

The bearish close of last week triggered some of our sell-stops and we should sell the following positions today.

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.