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.

We finally had the opportunity to take off our August 18, 2023 462/466 bear call spread for a decent 7.8% gain. Certainly nothing to write home about, but given the rise in the SPY since we opened our 462/466 bear call spread back on June 30, we were more than happy to lock in a profitable trade. We were in the trade for 37 days.

Several days after we locked in our profit in the SPY 462/466 bear call spread we were given the opportunity to lock in another winner, a 9.9% profit in our SPY September 15, 470/475 bear call spread. We were in the trade for 7 days.

As earnings season winds down, we are greeted with several nice trading opportunities in some big names including Home Depot (HD), Target (TGT), Cisco Systems (CSCO) and Walmart (WMT).

After a slow earnings week last week things pick back up on the earning front this week. My hope is that we are able to make two, if not three trades this week with the focus being on the four trades in the Weekly Watchlist below. As we discussed on our subscriber call last week (out last call for this earnings cycle), we have several quality opportunities in front of us. Now let’s hope Mr. Market offers us some decent probabilities and premium so that we can take on a few short-term earnings trades.

Stop me if you have heard this before, but inflation data and the moves in the bond market continue to be the major drivers of the market’s moves. And last week traders weren’t thrilled with these inputs as the S&P 500 fell by 1%, the Dow gained 0.5% and the Nasdaq continued its recent weakness with a further decline of 2%.

The overall market has started to pull back, and the encouraging news is that, from a top-down perspective, things are under control--our trend-following indicators are positive and the retreat to this point has shown little, if any, abnormal qualities. The problem, though, is growth stocks, as many of them haven’t just fallen, but decisively cracked their intermediate-term uptrends, often after quarterly results--that’s not something we can ignore, and so we’ve been selling and have quickly built up a big (50%-ish) cash position. Near-term, we expect this correction to go further, but the odds continue to favor a resumption of the bull trend once the selling finishes up.

In tonight’s issue, we write a lot about this earnings season and some slightly different tactics we may use going ahead, aiming to still give us long-term upside but better protect ourselves against trends that don’t persist. We also review a bunch of new names and offer plenty of commentary about the good, bad and ugly of the stocks we own and are watching.

In this week’s Cabot Explorer issue, Novo Nordisk (NVO) stock surges on the back of positive data on its best-selling weight loss drug Wegovy, U.S.-China tensions rise again, and we add one of the signature growth stocks on the market to our portfolio. Enjoy!

The markets traded sideways through most of April. But since then, the choppiness has returned—along with worries about the uncertainty regarding the debt ceiling, the expiration of the immigration-limiting legislation, and ongoing debate about the possibility of a recession.

Yet, economically speaking, the trends are still healthy. Manufacturing has held up, employment continues to rise, and job openings are still underutilized (as you can tell if you’ve been in a restaurant lately!).

The market looks great right now. Inflation is falling fast, the Fed is just about done hiking rates, and there is no recession in sight. It looks like we will get through the steepest rate-hike cycle in decades without much economic pain.

But nothing is certain. Inflation could rise again. The Fed may keep rates high for longer than the market expects. The economy may turn south in the quarters ahead. There could be more trouble with bank failures or the war in Ukraine. S&P earnings have been contracting for three straight quarters.

We’ll see if the market can add to the 30% rally from the low, or if it turns south again. A reasonable argument can be made for either scenario. Instead of trying to guess the possible short-term gyrations, let’s look to investments that should be longer-term winners no matter what.

In this issue, I highlight a stock that diversifies the portfolio into the consumer space. The company operates in an incredible niche market that has provided earnings growth for 31 consecutive years and enabled the stock to outperform the market in every measurable period over the last 15 years. The company is positioned for strong growth in the years ahead and the stock has a long track record of delivering stellar returns in all kinds of markets.

Today, I’m recommending a company that has been on my watch list for several months. It looks too compelling to ignore.

Key points:

• No debt and 37% of its market cap in cash.
• Cheap valuation. Good dividend yield and share buyback program.
• High insider ownership.

All the details are inside this month’s Issue. 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.

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.

This note includes our review of earnings from Dril-Quip (DRQ), General Electric (GE), Holcim (HCMLY), Janus Henderson Group (JHG), Kraft Heinz Company (KHC), Lamb Weston Holdings (LW), M/I Homes (MHO), Newell Brands (NWL), Polaris (PII), Shell plc (SHEL) and Xerox Holdings (XRX).

There were no ratings or price target changes this week.

With this morning’s first read of Q2 GDP coming in at -0.9% and marking the second consecutive quarter of negative growth (Q1 GDP was -1.6%), many are claiming (or soon will claim) the U.S. is in a recession.

As expected, America’s central bank, the Federal Reserve, raised its benchmark interest rate 0.75% for the second straight meeting in an effort to beat down inflation that’s been running at a four-decade high.

Many are dubbing this week the most important of the year in terms of financial and market news. There are a slew of important earnings reports, a Fed meeting and likely rate hike, and the second-quarter GDP report.

Big news can bring great change. Change can bring good things when the current environment stinks. After all, if you live in Siberia, you’re not worried about climate change.

Russia’s decision to cut the oil it exports to Europe again – it’s now down to about 20% of pre-Ukraine invasion levels – is a sign the country wants to force energy prices higher to break opposition to the war. Higher fossil fuel prices are a long-term positive for renewable utility-level energy in Europe and for EVs there and in the U.S. In the sector right now, there are still lots of headwinds, but Greentech is making some progress. The near-term moving averages, the 20-day and 40-day, are now flat and hinting at turning higher, a sign that the bears may be wearing themselves out. Other signals are mixed but increasingly suggest the lows of May could be the bottom of this market.

We are entering the heart of earnings season. So far, the results are unimpressive. The entire retail sector is on alert after Walmart’s pre-announcement about weaker earnings due to their accelerating efforts to offload surplus inventory.

This week, we had a decent amount of news as earnings have started to get under way.

CFTC Commissioner Caroline Pham expressed support for cryptocurrency by criticizing the SEC’s enforcement approach. The following is an important statement, as crypto industry leaders including Sam Bankman Fried are calling for clearer regulatory guidance.

A sudden surge in the U.S. dollar over the past year has bought good and relatively bad news for some firms. With the dollar strengthening, American companies with significant imports have benefitted from cheaper foreign exchange trade. Meanwhile, companies with a more global business are suffering because the strong dollar is affecting their performance.

This note includes our review of earnings from Mattel (MAT) and Nokia (NOK). Next week starts the deluge, with Vodafone (VOD), Dril-Quip (DRQ), General Electric (GE), Xerox (XRX), Polaris Industries (PII), Holcim (HCMLY), Kraft Heinz (KHC), M/I Homes (MHO), Lamb Weston (LW), Janus Henderson Group (JHG), Shell (SHEL) and Newell Brands (NWL) reporting.

There were no ratings or price target changes this week.

The major indexes had another good day, today—both the Dow and Nasdaq rose 162 points.

Today, the Undiscovered Portfolio sold three ETFs for the following reasons.

Cloudflare (NET) reported Q4 results yesterday that surpassed expectations. Revenue was up 54% to $193.6 million while adjusted EPS came in at $0.01. As compared to some other software stocks that have beat expectations, Cloudflare reinvested the surplus cash in growth initiatives, so it didn’t flow to the bottom line.

Our first idea, a cloud security company, is set to report earnings today. Analysts are expecting EPS of $0.11 on revenues of $241.56 million. Our second recommendation is a short-sale of a company whose shares are on a downward slide.

Cloudflare (NET) reported Q4 results yesterday that surpassed expectations. Revenue was up 54% to $193.6 million while adjusted EPS came in at $0.01. As compared to some other software stocks that have beat expectations, Cloudflare reinvested the surplus cash in growth initiatives, so it didn’t flow to the bottom line.

Sprout Social (SPT) reported a terrific Q4 yesterday and offered above-consensus guidance for 2022. Despite the good results and outlook, we’re going to sell another one-quarter position to take our stake down to one half today. The bottom line is it continues to be a challenging environment for pure growth stocks, and we need to continue to adapt to the times.

This Indiana bank is rated ‘Strong Buy’ by Zacks, based on rising earnings estimates. It also pays a healthy annual dividend yield of 2.31%, paid quarterly.

This electrical equipment company beat analysts’ EPS estimates by $1.02 last quarter.

Today is the expiration of our three February covered calls. The big picture takeaway is that all three will expire for full profits, you don’t need to act on any of these trades, and come Monday we will no longer own a stock or option position in MRO, TECK and ABBV.

This title insurance company beat earnings estimates in its most recent quarter, posting EPS of $2.94, compared to the $2.01 estimate. The shares have a current dividend yield of 2.15%, paid quarterly.

Gold is heating up as the Ukraine-Russia situation heats up, and some of the blue-chip senior and mid-tier gold miners are showing conspicuous signs of relative strength. Since mining stocks tend to outperform gold in a precious metals bull market, it’s time to take a closer look at the leading miners.

Cloudflare (NET) reported Q4 results yesterday that surpassed expectations. Revenue was up 54% to $193.6 million while adjusted EPS came in at $0.01. As compared to some other software stocks that have beat expectations, Cloudflare reinvested the surplus cash in growth initiatives, so it didn’t flow to the bottom line.

This medical device maker is expected to grow earnings by more than 30% next year, and is trading at a severe discount. The shares have a current annual dividend yield of 3.07%, paid annually.

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.