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?

The market turned ugly again fast yesterday. It was the worst single-day selloff in years after reality crushed the pipedream that inflation is plunging and the Fed will stop being hawkish by early next year.

The headline inflation number came in at 8.3% for August versus an expected 8.1%. Although it was lower for the second straight month, after 8.5% in July and 9.1% in June, it was worse under the hood. CPI inflation was lower because of falling gas prices. Virtually everything else rose. Core inflation, which subtracts volatile food and energy prices, rose significantly from July to August.

A sizeable drop in the market indexes yesterday got all the headlines, as it leads to concerns the Federal Reserve will be more aggressive in raising interest rates to tamp down inflation that isn’t cooling as quickly as hoped. The drop plunked the markets on top of a zone of support – all the trading that happened below current levels in mid-June to mid-July – so there is no need to panic.

In our August 24 note, we commented that the current stock market felt like the scene in the 2000 movie “The Perfect Storm” in which the fishing boat Andrea Gail, after an intense battle with the storm, finds herself in calmer waters lit by rays of sunshine.

It has been a bullish weekend for crypto after SEC Chairman, Gary Gensler, issued a statement saying that Bitcoin and Ethereum should be regulated by the Commodities and Futures Trading Commission (CFTC), while “tokens” or cryptocurrencies that share the characteristics of equities should be regulated by the Securities and Exchange Commission (SEC).

Earnings season is over, although it starts again on October 13 with Walgreens Boots Alliance (WBA). Today’s note includes a summary of the podcast.

The broad market pulled back 7% in the week after Fed Chair Jerome Powell’s Jackson Hole speech and small caps did a little worse, drifting as much as 10% lower as of Tuesday’s close. But the last couple of days have been better, setting up what could be a little relief rally next week.

Of course, the CPI numbers (to be released next Wednesday) will likely dictate broad market movement in the back half of the week (they should show continued moderating inflation).

Markets continue to at best tread water. Yesterday, markets performed better as the Nasdaq Composite ended a seven-session streak of declines.

Kraken Robotics (KRKNF) shares were up 20% in their first week as an Explorer recommendation as the company signed a follow-on contract to supply additional KATFISH™ for the NATO Navy’s new mine hunting vessels.

The market has closed lower for three straight weeks and declined about 9% from the August high as we head into September. Where do we go from here?

The market is having trouble deciding. It’s still unclear what the primary threat or driver will be. Is the main problem inflation or recession? It remains to be seen if inflation has indeed peaked and if it’s headed lower. The state of the economy is also unclear. Is this a recession after two consecutive quarters of GDP contraction? It is also an open question if the economy remains buoyant or is declining from here.

Three straight weeks of market declines have moved the S&P 500 down 8.9% from the mid-August high. The selling is continuing this first day after Labor Day, so far.

It’s our old friends inflation and recession causing trouble. The market increasingly fears recession as the hawkish Fed raises rates to tame inflation and investors anticipate a hard landing. The weakness may continue in the weeks ahead, as September is historically the worst month of the year for the market.

This week, we had limited news but there was one update that I wanted to highlight:
RediShred (RDCPD) completed a reverse split on August 18th. For every five shares that you previously owned, you now own one share. The stock price adjusted up to account for the reverse split. The reverse split has no economic impact on RediShred. You still own the same percentage of the company.

The market has been a mess for the past several months, as countless stocks have completely fallen apart. It’s been UGLY.

Kronos Worldwide (KRO) is now up 18% from our initial entry point as of Thursday, which means it’s time to take some profit off the table per the rules of our trading discipline.

Bitcoin is rallying today up 4.61% when compared to the broader market which is flat. The Nasdaq is up slightly, with small caps leading today’s modest rally.

We are moving shares of Altria (MO) from Buy to Sell. While the shares remain 21% below our $66 price target, the risk/return trade-off has become unfavorable.

We’ve held on to a small stake in Endava (DAVA) hoping the market would turn around before our gain dwindled too much.

CS Disco (LAW) reported Q1 numbers that surpassed expectations. Revenue rose 63.5% to $34.5 million (beating by $3.8 million), while adjusted EPS of -$0.15 beat by $0.06.

Today we are adding Arista Networks (ANET) to our Watchlist.

There’s no doubt about it: this market stinks.


Every major index has been hitting new lows, the news is terrible (raging inflation and soaring interest rates), and investors have grown increasingly fearful, as the profits of 2021 have quickly evaporated in the bear market of 2022.

Xometry (XMTR) delivered quarterly results ahead of expectations this morning.

We launched Cabot SX Crypto Advisor during a time of extreme global uncertainty.

Earnings Updates: Shockwave (SWAV) Remains a HOLD. TaskUs (TASK) Moves to SELL.

Based on market conditions and to limit losses, I suggest you sell the following two Explorer recommendations:

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.