In the October Issue of Cabot Early Opportunities, I dig into a group of software companies that have upside potential from AI, automation and security. I also feature a diversified bioprocessing and advanced materials company that’s drawing attention right now and go deeper into a very small industrial company that few investors have ever heard of.

As always, there’s something for everybody!

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.

The story remains mostly the same in the market as it has for the past few weeks: The intermediate-term trend for nearly all major indexes and the vast majority of individual stocks is pointed down. That said, there also are a decent number of stocks holding up fairly well—and with earnings season starting in a major way this week, the potential is there for some leadership to develop if we see some strong upside gaps following reports. We’re all for it happening, but overall it’s best to remain cautious as the market attempts to turn the corner. Once again, we’ll leave our Market Monitor at a level 5.

This week’s list has a wide array of good-looking names, though for our Top Pick we’re going with a liquid leader that, while not in the first inning of its run, acts like it wants to go higher.

Stocks are showing signs of strength as we dive head-first into third-quarter earnings season. Will the latest round of company reports give markets the nudge they need to enter their first substantive rally since mid-summer? Or will they douse the rally with cold water before it really even begins? We’ll have our answer soon. In the meantime, in case it’s the latter, today we add a reliable dividend payer that’s been gaining traction thanks to the restored global supply chain. It’s a brand-new recommendation from Cabot Dividend Investor’s Tom Hutchinson.

Details inside.

We added a November 17, 2023, bull put spread in SPY last week, which gives us three positions. The addition of our bull put spread essentially forms another iron condor, although I will be managing the bear call spread and bull put spread in SPY separately.

Expiration is upon us, and three of our six positions are due to expire this week.

I plan to buy back our calls in WFC, as they are essentially worthless, lock in some profits and immediately sell more call premium.

As for our GDX covered call position, the current probability is basically 50%, so we are in coin toss territory. I’ll update my thoughts on the position, with any necessary alerts, as the week progresses.

Earnings season kicked off late last week with the big banks leading the way. We decided to place our first trade of the season in JPMorgan Chase (JPM) by using a 14.5-point range, with our short strikes at 152.5 and 138. We felt comfortable with the range as it was not only well outside of the expected range (141 – 151) for JPM, but covered, on a percentage basis, all earnings moves going back to October 2006. These are the type of setups we prefer to trade.

The market rally in 2023 and recent pullback have left the All-Weather portfolio up a respectable 4.5%, with our poor man’s covered call in the Vanguard Total Stock Market ETF (VTI) continuing to do the heavy lifting, up 21.4%. The S&P 500 is flat over the same time frame.

Our SPDR Gold Shares ETF (GLD) position has been resurgent of late. After being down roughly 20%, our poor man’s covered call position in GLD now sits 7% higher.

Not surprisingly this past week had many ups and downs, as the market responded well to bad news early in the week and then gave up some of those gains on Friday. By week’s end the S&P 500 had gained 0.46%, the Dow had risen by 0.79% and the Nasdaq had fallen marginally.

Not surprisingly this past week had many ups and downs, as the market responded well to bad news early in the week and then gave up some of those gains on Friday. By week’s end the S&P 500 had gained 0.46%, the Dow had risen by 0.79% and the Nasdaq had fallen marginally.

Investors weren’t surprised by the Federal Reserve’s decision to hold rates steady, but they also didn’t react by ramping up their stock purchases—too much uncertainty what with the election rhetoric heating up and the turmoil in Congress, after Kevin McCarthy was unceremoniously ousted as Speaker. And now, we have the war in Israel.

It’s a confusing market, to say the least. Six months from now we could be in an environment of high rates and sticky inflation, or we could be spiraling toward recession, or anything in between. And stock sector performance is highly dependent on which situation unfolds.

Forget trying to predict the near-term market gyrations, or the Fed, or GDP. Instead, let’s focus on the bigger picture and what we do know. For example, know for a fact the population is aging at warp speed. The population is older than it has ever been all over the world. And the trend is accelerating.

We are in the midst of a tectonic shift in the human population that will have a profound effect on the market and economy. Companies that benefit from this megatrend will have a huge advantage. It’s not an accident that pharmaceutical stocks Eli Lilly (LLY) and AbbVie Inc. (ABBV) are the best performing stocks in the portfolio.

In this issue I highlight the stock of a company that serves a vital role in the pharmaceutical supply chain. It operates a near monopoly that grows every year. Performance has been spectacular and there is every reason to believe the good times will continue.

Tuesday’s CPI report served up a 0.02% miss, which sent the market into a tailspin. The Nasdaq fell more than 5%, its worst day since 2020. The S&P 500 Index fell 4.3%. And small caps? The S&P 600 fell 3.9%

As of 2 pm EST, The market was mostly lower, though modestly so, with the Dow up 33 points, but the Nasdaq down 85 points and most growth stocks in the red.

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.

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:

We’re going to take profits on Archaea Energy (LFG) today, after shares tripped our stop-loss of ‘under 20’ with a close at 19.80 Monday. We should book a profit of around 8%. There is more support for LFG below here, particularly at 18.70, but with sectors broadly breaking support levels yesterday, we prefer to get out with a profit now.

They say markets don’t bottom on a Friday. Today’s weakness is showing that old adage to be true yet again.

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.

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.