In the July Issue of Cabot Early Opportunities, we take a quick look at earnings expectations for each of our positions. And we dig into five opportunities spanning AI, HVAC services, retail, real estate and quantum computing.

This may just be our most diverse group of stocks ever.

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.

There’s no doubt the market continues to keep investors on their toes, and some further discomfort in the short term is certainly possible after the recent run. It’s also a decent bet that earnings season, which is now ramping up, will present a few potholes. But those are the trees—if you look at the forest, all of the bullish factors are still in place, whether it’s the uptrend in the major indexes, the solid action among most leading stocks, the sluggishness of defensive stocks and, more recently, the strength of the broad market (including five straight days of 2-to-1 NYSE breadth). We remain bullish and expect higher prices—we’ll leave our Market Monitor at a level 8.

This week’s list has a very broad mix of names, including everything from giant blue chips to more speculative small caps. Our Top Pick is in the right area (big-cap growth) and is trying to emerge from a tight consolidation. Earnings are out in a couple of weeks, so start small and build if the breakout works.

The new bull market went into hyperdrive last week, fueled by lower-than-expected inflation and an encouraging start to earnings season. With another interest rate hike and weak Q2 earnings expectations looming in the back half of this month and beyond, there could be some speed bumps ahead. But for now, the good times are rolling, and that means taking more big swings. This week, we do so in a small-cap, Canada-based rare earths producer that is a brand new recommendation from Cabot Explorer Chief Analyst Carl Delfeld.

We enter the week with several trading opportunities on the horizon. My plan is to add two trades this week, an iron condor and the potential for another bear call spread.

Implied volatility ranks, otherwise known as IV ranks, are low across the board. IV rank is where the current implied volatility (IV) sits in comparison to the last 12 months of readings. This makes sense given the recent surge in the market, right? And while macro conditions seem to be improving, with more indicators showing a bullish bias and numerous other bullish signals, we have to remember, we place trades going out 45 to 60 days in Quant Trader with the average trade lasting 20.5 days.

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.

Fortunately, the start of earnings season started off on the right foot. On Thursday, we placed our first trade of the season in JPMorgan Chase (JPM), our standard, outside-of-the-expected-move, iron condor. On Friday, JPM opened up slightly, well within our chosen range and as a result, all uncertainty around the announcement diminished, volatility was immediately crushed, and we were given the opportunity to take off the trade for a profit. Shortly after the opening bell we locked in a quick one-day gain of 8.0%.

The market continues to rally and the All-Weather portfolio is now up 10.2%, with the Vanguard Total Stock Market ETF (VTI) and SPDR GLD Shares ETF (GLD) doing the heavy lifting, up 26.0% and 8.6%, respectively.

Nothing has changed from last month, both bond funds (TLT and IEF) and the commodity fund (DBC) continue to lag behind, but that is the yin-yang protective nature of the All-Weather portfolio just doing its job.

The market surged higher yet again last week, and traders are beginning to wonder if a run at new highs is in the cards in 2023. While there is a way to go until we reach those peaks, last week’s gains of 2.4% for the S&P 500, 2.3% for the Dow, and 3.32% for the Nasdaq gives the bulls hope.

The market surged higher yet again last week, and traders are beginning to wonder if a run at new highs is in the cards in 2023. While there is a way to go until we reach those peaks, last week’s gains of 2.4% for the S&P 500, 2.3% for the Dow, and 3.32% for the Nasdaq gives the bulls hope.

There’s not much to say: The market and leading stocks continue to act in a textbook fashion, with not just more up than down but tame pullbacks that respect logical support and big volume on the advances--all signs that big investors are accumulating stock. We still want to be selective on new buys, and we’re sure earnings season will throw everyone a few curveballs, but we continue to put money to work--today we’re adding a few more shares to one of our positions and adding a full-sized stake in a new name.

Elsewhere tonight, we write about another bullish long-term market indicator, what the recent action in interest rates mean, and go over many leading and potential leading stocks that are enjoying the market’s newfound uptrend.

Inflation cooled last month to its slowest pace in more than two years, buoying markets even though the Fed may raise interest rates later this month.

While the Nasdaq composite is a basket of more than 3,000 stocks listed on the Nasdaq exchange, the Nasdaq 100 is the basis for the QQQ – the second-most heavily traded ETF in America, after the SPY ETF which tracks the S&P 500.

It continues to be a sloppy market but we’re working through it and there will be big opportunities in small-cap stocks on the other side of this.

The market has deteriorated over the past couple weeks. The S&P 500 fell into a bear market on June 13th. The combination of continuing high inflation and a more aggressive than previously expected Fed has led to widespread expectations of recession over the next year.

Recessions are bad for stocks for obvious reasons. But there is something worse than recession, looming recession. Stocks generally recover during a recession. Because the market anticipates, it tends to rebound before the economy. The worst environment for stocks tends to be prior to recession, upon expectation, to part of the way through it.

Looking at the weekly charts, last week created some damage, technically. The S&P 500, tech-heavy Nasdaq 100 and the Greentech ETFs all gapped lower with last week’s action. A price gap typically creates resistance, and the pushback here is made even sturdier because the gap coincides with the 40-day moving average for Greentech (the S&P and Nasdaq 100 are well below their 40-day averages today). That means that even while we’re looking at posting the third straight up-day in the Greentech sector for the week, it’s not a time to get overly optimistic.

It was a quiet week last week, but there was one update that I wanted to highlight.

Years ago, on a visit to New York City, I was invited to participate in a wine tasting seminar. My knowledge of wine was rudimentary at best when I attended, and so it remains today.

While our Undiscovered Portfolio continues to lead the broader market, the dynamics have changed since the most recent ETF Strategist issue.

Last week marked the worst weekly return for the S&P 500 since March 2020, a move sparked by the most significant Federal Reserve interest-rate hike in a decade. The index is down 23.39% from its record close of 4,796.56 on Jan. 3, 2022.



Every sector has suffered losses since June 8. Energy, utilities, and materials have been the S&P 500’s worst-performing sectors recently.

Just when it looked like stocks might be rounding a corner, sellers have returned in force and pushed the major indexes into bear market territory. While this was bad for Wall Street, gold finally got some much-needed relief as “risk-off” is clearly back with a vengeance.

Last week, we discussed the “golden opportunity” for bullion in the wake of investors’ cratering confidence in the economic outlook. Gold was at first slow to respond to the rush to the exits in the equity market. But gold’s latest refusal to fall under the $1,800 an ounce level showed that hedging demand has replaced interest in bargain hunting for stocks.

This week’s Friday Update includes comments on our companies. There were no ratings changes or earnings reports.

While the market began to show some encouraging signs later in May and into early June, the past week and a half has been a mess. The S&P 600 Small Cap Index slipped back to its May low near 1139 on Monday and was holding OK there, until today.

Legendary investor J.P. Morgan was often asked what the stock market would do. “It will fluctuate,” replied the taciturn Morgan.

The psychology of the markets can be puzzling. On Wednesday, the Federal Reserve, America’s Central Bank, raised its benchmark interest rates 75 basis points, the most since 1994. And the market liked it because it was way overdue and will hopefully help stem inflationary pressures in the economy. Will it slow growth, housing sales, consumer spending, and raise the carrying cost of U.S. debt? Yes, of course.

This global electrical equipment maker is expected to grow earnings by more than 14% annually, over the next five years. It pays a current dividend yield of 2.28%, paid annually.

The market started out lower this morning after a worse-than-expected jobs report. As of 11:30 am, the Dow is down just 14 points, but the Nasdaq is off 130 points and growth-oriented indexes are down another 1% to 2%.

This Top Pick is a perennial investor favorite, especially for the annual dividend of 7.50%, which is paid quarterly.

ESS Tech (GWH) closed below our sell-stop yesterday and isn’t bouncing today. We recommend selling.

This travel-focused tech company just separated its CEO and President roles to help strengthen the company in preparation for the winding down of the pandemic. The company’s earnings are forecast to grow by more than 70% next year.

Growth stocks are continuing on their path lower so far today while some cyclical stocks perk up—as of 12:15 EST, the Dow is up 115 points but the Nasdaq is down 155 points and most growth stocks are off much more than that.

The shares of this gold miner are now in 33 hedge funds’ portfolio. The shares have a current annual dividend yield of 2.63%, paid quarterly.

Two days into 2022 and we’re seeing another round of selling in growth names, especially software, fintech, medical devices and e-commerce. Many names are retesting their November and/or December lows. We have seen a few names crack their 200-day lines, while a few others have begun to rebound intra-day.

Two days into 2022 and we’re seeing another round of selling in growth names, especially software, fintech, medical devices and e-commerce. Many names are retesting their November and/or December lows. We have seen a few names crack their 200-day lines, while a few others have begun to rebound intra-day.

This payments company is expected to grow at an annual rate of almost 18% over the next five years.

We’re going to kick off the first trading day of 2022 by taking profits in a few names.

This food producer is a good turnaround candidate, with double-digit earnings expected next year.

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.