Issues
The market remains mostly in the same position it has been, with the big-cap indexes trending nicely higher and, based on historical studies, the outlook for the indexes very bullish looking out 3 to 12 months. That said, the broad market is borderline iffy (our Two-Second Indicator is negative) and the chop factor is still with us for growth stocks, so we’re still not cannon-balling into the pool ... though we do see many setups (as so many stocks have marked time for the past 1 to 3 months) out there. Tonight we’re adding another new half-sized position but are still holding about one-third in cash as the next couple of weeks will be telling.
Today we’re wading into the sports betting market, which is evolving into a duopoly where two players hold most of the data that provides a vast network of sportsbooks access to the world’s biggest sporting events.
There is, however, more to the story than just placing a wager on your favorite team.
The October Issue of Cabot Small-Cap Confidential explains it all, and which of these global tech companies we’re teaming up with.
There is, however, more to the story than just placing a wager on your favorite team.
The October Issue of Cabot Small-Cap Confidential explains it all, and which of these global tech companies we’re teaming up with.
The story of last week was under-the-surface weakness in growth stocks, while money rotated into “everything else.” And by week’s end the S&P 500 had lost 0.3%, the Dow fell 0.1%, and the Nasdaq declined by 0.7%.
The market is still in fine overall shape, but under the hood, it’s becoming more and more of a mixed situation. To be clear, there remains a lot more good than bad when examining the evidence, but for the here and now, we advise simply taking things on a stock-by-stock basis—holding your strong performers (albeit also raising stops and potentially booking a partial profit here or there), while cutting bait with those that lag or crack support and keeping some powder dry. We’ll again leave our Market Monitor at a level 7—we’ve had good success finding winners but don’t advise flooring the accelerator at this point.
This week’s list is growth-ier despite some potholes seen last week, which is a plus. For our Top Pick, we’re going with a blue chip in the AI theme, with its recent post-earnings pullback setting up an opportunity.
This week’s list is growth-ier despite some potholes seen last week, which is a plus. For our Top Pick, we’re going with a blue chip in the AI theme, with its recent post-earnings pullback setting up an opportunity.
Stocks finally took on some water last week, though the damage was minimal. Under the surface, there are a few more cracks, with the number of stocks hitting 52-week lows on the rise. Still, there’s no cause for concern yet. Just in case there is a more extended pullback in the offing, however, today we add a “boring” insurance play, but one that pays a high dividend and whose share price has been on steady uptick for the last couple months. It’s a recommendation from Tom Hutchinson to his Cabot Dividend Investor readers.
Details inside.
Details inside.
The story of last week was under-the-surface weakness in growth stocks, while money rotated into “everything else.” And by week’s end the S&P 500 had lost 0.3%, the Dow fell 0.1%, and the Nasdaq declined by 0.7%.
The story of last week was under-the-surface weakness in growth stocks, while money rotated into “everything else.” And by week’s end the S&P 500 had lost 0.3%, the Dow fell 0.1%, and the Nasdaq declined by 0.7%.
To begin, I would like to highlight that I have decided to omit the brief company review section that followed our weekly stock updates. This section caused some confusion and the information about each company is widely available. Likewise, I’m ending the Explorer watch list. If you own the stocks on the list right now, I see no reason to sell them.
Moving on to the market, the debates regarding the market’s direction seem endless.
Moving on to the market, the debates regarding the market’s direction seem endless.
While investor-friendly cannabis reform marches ahead at the state level, it’s still a “wait and see” game in Washington, D.C.
Rescheduling by the Trump administration remains the big potential near-term federal catalyst. If it happens, it will be a “sell the news” event for at least part of your cannabis exposure over the subsequent two or three trading days, for these reasons:
Rescheduling by the Trump administration remains the big potential near-term federal catalyst. If it happens, it will be a “sell the news” event for at least part of your cannabis exposure over the subsequent two or three trading days, for these reasons:
My modus operandi when writing the monthly version of the Cabot Turnaround Letter is to focus solely on a single stock when making a purchase recommendation. And in keeping with that spirit, I’ll be doing the same in this month’s edition of the newsletter. But I will also highlight two additional stocks with what I see as having excellent mid-to-long-term turnaround potential.
The market looks great. But the indexes are teetering around the highs while uncertainty is still swirling around.
Fortunately, some of the highest dividend paying stocks are still reasonably priced ahead of an increasingly promising future. Midstream energy stocks have been flying under the radar while paying some of the highest dividends on the market. These stocks are also well suited for whatever lies ahead.
Midstream energy stocks have provided a high income and a solid return throughout most market cycles. And that makes them ideal for the current unpredictable environment. But that was before. Things are changing for the better. The environment for energy is undergoing a radical transformation that could make these stocks better than ever before.
The growing demand from utilities and exporters will provide an unprecedented runway for growth in the years ahead that historical performance doesn’t reflect. In this issue, I highlight one of the very best midstream energy companies on the market.
Fortunately, some of the highest dividend paying stocks are still reasonably priced ahead of an increasingly promising future. Midstream energy stocks have been flying under the radar while paying some of the highest dividends on the market. These stocks are also well suited for whatever lies ahead.
Midstream energy stocks have provided a high income and a solid return throughout most market cycles. And that makes them ideal for the current unpredictable environment. But that was before. Things are changing for the better. The environment for energy is undergoing a radical transformation that could make these stocks better than ever before.
The growing demand from utilities and exporters will provide an unprecedented runway for growth in the years ahead that historical performance doesn’t reflect. In this issue, I highlight one of the very best midstream energy companies on the market.
Before we dive into this week’s idea, I do want to note that our September IBKR, GLW and RKT covered calls finished in-the-money which means we walked away from those trades with our full profits, and no longer own a stock or option position in these stocks.
Updates
What a difference two months make!
On April 8, the Nasdaq had plummeted to bear market territory after touching all-time highs just six weeks earlier, and the S&P 500 was on the cusp of joining it. Small caps were faring even worse. Volatility had spiked to multi-year highs. And everyone was certain a recession or high inflation – or both – were imminent.
The reason was tariffs. “Liberation Day,” a week earlier, on which President Donald Trump had imposed sky-high tariffs on more than 100 U.S. trading partners from all over the world, had sent stocks plummeting as economists clutched their pearls and warned of imminent collapse.
On April 8, the Nasdaq had plummeted to bear market territory after touching all-time highs just six weeks earlier, and the S&P 500 was on the cusp of joining it. Small caps were faring even worse. Volatility had spiked to multi-year highs. And everyone was certain a recession or high inflation – or both – were imminent.
The reason was tariffs. “Liberation Day,” a week earlier, on which President Donald Trump had imposed sky-high tariffs on more than 100 U.S. trading partners from all over the world, had sent stocks plummeting as economists clutched their pearls and warned of imminent collapse.
Cannabis companies remain in hunker-down mode as challenges persist. Those include price compression, competition from hemp-based THC product sales, and uncertainty about potential federal reform.
Not all cannabis companies are going to survive. Ayr Wellness (AYRWF) looks like it is about to go under. I’ve only ever kept a very small position in that name, so the company’s demise did not cause too much damage.
Not all cannabis companies are going to survive. Ayr Wellness (AYRWF) looks like it is about to go under. I’ve only ever kept a very small position in that name, so the company’s demise did not cause too much damage.
After bouncing around for a few weeks, the S&P is moving higher again. The index is now just about 2% below the high and may rally this month.
The tariff story continues to play out. The market made a huge recovery after the initial fears in April as investors wrote off a disaster scenario. Now, talks are dragging on, and the market still can’t move completely past the issue. But good economic news was a pleasant surprise.
The tariff story continues to play out. The market made a huge recovery after the initial fears in April as investors wrote off a disaster scenario. Now, talks are dragging on, and the market still can’t move completely past the issue. But good economic news was a pleasant surprise.
In today’s note, we discuss pertinent developments for some of the stocks in the portfolio, including Alcoa (AA), Dollar Tree (DLTR), Intel (INTC), Kenvue (KVUE), Pan American Silver (PAAS), Paramount Global (PARA), UiPath (PATH) and SLB Ltd. (SLB).
Dollar Tree (DLTR) had a big week in the wake of earnings, hitting a new high for the year to date.
Dollar Tree (DLTR) had a big week in the wake of earnings, hitting a new high for the year to date.
WHAT TO DO NOW: Continue to lean bullish, but pick your spots. Our intermediate-term indicators remain bullish, and the market’s consolidation so far has been tight and quiet, which is a plus. Leadership remains good-not-great, with many names acting well but also plenty of wobbles and some selling on strength, too. All told, we’re content to follow the playbook we’ve been using, adding as names emerge and averaging up if they start well. Tonight, we’ll fill out our position in Snowflake (SNOW), adding another half-sized stake, but we’ll hold 31% or so in cash and see how things go from here.
The market rally has gotten stuck in the mud for now. It will likely take some good news to really get it moving higher again.
Stocks have hugely recovered from the tariff Armageddon selloffs of early April. The index made up all that tariff ground and the S&P came within just a few percent of the high. But the rally has stalled over the past couple of weeks as positive headlines have been in short supply.
Stocks have hugely recovered from the tariff Armageddon selloffs of early April. The index made up all that tariff ground and the S&P came within just a few percent of the high. But the rally has stalled over the past couple of weeks as positive headlines have been in short supply.
The market has leveled off since the huge recovery from the tariff Armageddon fears. And now, who knows.
The sticky issue to start the week is increasing trade tensions with China. A war of words is escalating between the two governments and threats are being made by both sides. It is being reported that President Trump will speak with Chinese President Xi today or later this week. Hopefully the two leaders will bring down the temperature.
The sticky issue to start the week is increasing trade tensions with China. A war of words is escalating between the two governments and threats are being made by both sides. It is being reported that President Trump will speak with Chinese President Xi today or later this week. Hopefully the two leaders will bring down the temperature.
In today’s note, we discuss pertinent developments for some of the stocks in the portfolio, including Centuri Holdings (CTRI), GE Aerospace (GE), Intel (INTC) and Paramount Global (PARA).
GE Aerospace (GE) stands to benefit from the recent legal challenge to the White House’s tariffs.
GE Aerospace (GE) stands to benefit from the recent legal challenge to the White House’s tariffs.
The S&P 600 Small Cap Index popped right back up this week after selling off and landing on its intersecting 50- and 25-day moving average lines last Friday.
Despite the holiday-shortened week, it feels like a lot has happened at the macro level since last Thursday’s update.
Despite the holiday-shortened week, it feels like a lot has happened at the macro level since last Thursday’s update.
Closely watched Nvidia (NVDA) reported its first-quarter earnings yesterday, beating expectations nicely on revenue despite restrictions on shipments of its H20 chips to China. The company posted revenue of $44.1 billion, up 69% from a year ago, but Nvidia expects to miss out on roughly $8 billion in sales of H20s to China in the second quarter.
Wall Street analysts expect stocks to be flat for the rest of the year. That’s according to a new Reuters poll, which surveyed 51 strategists, analysts, brokers and portfolio managers. Among them, the average year-end target for the S&P 500 was 5,900 – roughly in line with the current price, and essentially unmoved since the start of the year.
That’s not exactly exciting news, even if 5,900 would have felt like a win in early April, when the benchmark index dipped below 5,000 after President Trump’s now-infamous “Liberation Day” reciprocal tariff announcement. The rally since then has been impressive, but analysts aren’t confident we’ll get much more movement through the final seven months of the year.
That’s not exactly exciting news, even if 5,900 would have felt like a win in early April, when the benchmark index dipped below 5,000 after President Trump’s now-infamous “Liberation Day” reciprocal tariff announcement. The rally since then has been impressive, but analysts aren’t confident we’ll get much more movement through the final seven months of the year.
The market is looking good. Sure, it pulled back last week. But not by much. After the huge spike it had, the lack of a more significant pullback is encouraging. Stocks also started this week with a big up day on Tuesday.
Alerts
Shares of Perpetua Resources (PPTA) closed down 13% yesterday, likely on speculation that there will be a delay in the final Record of Decision (ROD) for the Stibnite Project.
Today, a whopping eight Profit Booster positions will expire. Most are “slam-dunk,” full-profit trades, while others will go down to the wire.
The big takeaway, before we dive in, is we are going to let the situation play itself out, and come Monday/Tuesday of next week we will revisit our profits, as well as how we will manage the remaining positions.
The big takeaway, before we dive in, is we are going to let the situation play itself out, and come Monday/Tuesday of next week we will revisit our profits, as well as how we will manage the remaining positions.
Shares of Mama’s Creations (MAMA) are trading down this morning in what “should” be a short-term retreat following a solid Q3 report. The takeaway from the report is that Mama’s has made considerable progress building the foundation for faster, higher-margin growth and is past construction and commodity-related disruptions that impacted Q3 results.
We’re going to show respect for the deteriorating breadth of the market by selling Willdan Group (WLDN) today at about our entry point (maybe 1% or 2% below it, depending).
WHAT TO DO NOW: We’re paring back further today, not because of any major change in the top-down evidence, but simply taking our cues from individual stocks. Today we’re going to sell our stake in Samsara (IOT), which pulled back normally after earnings last week, but the follow-on selling prompts us to cut bait. That sell will boost our cash position to the upper 30% range, which we’ll hold on to for now. Details below.
WHAT TO DO NOW: Growth stocks are finally hitting air pockets today after massive runs, and while many look fine from an intermediate-term point of view, some appear iffy after massive runs. Thus, we’re paring back today: We’re going to take more partial profits in AppLovin (after already booking some profit this morning), as well as selling one-third of Axon (AXON), which isn’t as extreme as some others but is coming under pressure. Details below.
WHAT TO DO NOW: Remain bullish, but continue to manage your positions. In the Model Portfolio, we’re going to again take partial profits in AppLovin (APP), selling one-third of what we have left. That will boost our cash position to around 22%. Details below.
Portfolios
An updated portfolio for Cabot Options Institute – Earnings Trader.
An updated portfolio for Cabot Options Institute – Earnings Trader.
An updated portfolio for Cabot Options Institute – Earnings Trader.
| Transaction Date | Poor Man’s Covered Calls | Original Price | Current Price | LEAPS Price | LEAPS Price | LEAPS Price | Premium Sold | Closing Price | Total Premium | Total Return | Position Delta |
| SPDR Gold Shares ETF (GLD) | $172.46 | $166.79 | (open) | (current) | (closed) | (current) | ($5.67) | ||||
| 6/3/2022 | LEAPS January 19, 2024 145 call | $37.00 | $30.20 | ($6.80) | 80 | ||||||
| 6/3/2022 | July 15, 2022 181 call | $1.00 | $0.12 | $0.88 | |||||||
| 6/30/2022 | August 19, 2022 175 call | $1.91 | $0.21 | $1.70 | |||||||
| 7/28/2022 | September 16, 2022 169 call | $1.90 | $0.07 | $1.83 | |||||||
| 9/1/2022 | October 21, 2022 165 call | $1.45 | $0.03 | $1.42 | |||||||
| 10/14/2022 | November 18, 2022 159 call | $1.48 | $4.45 | ($2.97) | |||||||
| 11/10/2022 | December 16, 2022 169 call | $1.40 | $1.02 | $0.38 | |||||||
| 12/13/2022 | January 20, 2023 172 call | $1.96 | $1.12 | $1.96 | -27 | ||||||
| Totals | $11.10 | $35.40 | 53 | ||||||||
| Transaction Date | Poor Man’s Covered Calls | Original Price | Current Price | LEAPS Price | LEAPS Price | LEAPS Price | Premium Sold | Closing Price | Total Premium | Total Return | Position Delta |
| Invesco DB Commodity Index Tracking Fund (DBC) | $30.45 | $24.16 | (open) | (current) | (closed) | (current) | ($6.29) | ||||
| 6/8/2022 | LEAPS January 19, 2024 22 call | $10.50 | $4.00 | ($6.50) | 70 | ||||||
| 6/8/2022 | July 15, 2022 32 call | $0.55 | $0.05 | $0.50 | |||||||
| 6/30/2022 | August 19, 2022 29 call | $0.50 | $0.05 | $0.45 | |||||||
| 7/28/2022 | September 16, 2022 27 call | $0.55 | $0.10 | $0.45 | |||||||
| 9/7/2022 | October 21, 2022 26 call | $0.50 | $0.00 | $0.50 | |||||||
| 10/25/2022 | December 16, 2022 27 call | $0.45 | $0.05 | $0.40 | |||||||
| 12/13/2022 | January 20, 2023 25 call | $0.45 | $0.35 | $0.45 | -33 | ||||||
| Totals | $3.00 | $6.75 | 37 | ||||||||
| Transaction Date | Poor Man’s Covered Calls | Original Price | Current Price | LEAPS Price | LEAPS Price | LEAPS Price | Premium Sold | Closing Price | Total Premium | Total Return | Position Delta |
| iShares Trust 7-10 Year Treasury Bond ETF (IEF) | $101.93 | $98.61 | (open) | (current) | (closed) | ||||||
| 6/8/2022 | LEAPS January 19, 2024 85 call | $19.00 | $16.25 | ($2.75) | 81 | ||||||
| 6/8/2022 | July 15, 2022 103 call | $0.70 | $0.19 | $0.51 | |||||||
| 7/14/2022 | August 19, 2022 105 call | $0.58 | $0.12 | $0.46 | |||||||
| 8/11/2022 | October 21, 2022 105 call | $1.20 | $0.04 | $1.16 | |||||||
| 9/22/2022 | October 21, 2022 98.5 call | $0.55 | $0.05 | $0.50 | |||||||
| 10/12/2022 | November 25, 2022 97 call | $0.92 | $0.18 | $0.74 | |||||||
| 11/17/2022 | December 16, 2022 98 call | $0.50 | $0.86 | ($0.36) | |||||||
| 12/13/2022 | January 20, 2023 100 call | $0.88 | $0.74 | $0.88 | -35 | ||||||
| Totals | $5.33 | $20.14 | 46 | ||||||||
| Transaction Date | Poor Man’s Covered Calls | Original Price | Current Price | LEAPS Price | LEAPS Price | LEAPS Price | Premium Sold | Closing Price | Total Premium | Total Return | Position Delta |
| Vanguard Total Stock Market ETF (VTI) | $189.65 | $192.69 | (open) | (current) | (closed) | ||||||
| 6/15/2022 | LEAPS January 19, 2024 145 call | $54.50 | $56.60 | $2.10 | 85 | ||||||
| 6/15/2022 | July 15, 2022 198 call | $2.50 | $0.03 | $2.47 | |||||||
| 7/14/2022 | August 19, 2022 193 call | $3.20 | $11.00 | ($7.80) | |||||||
| 7/28/2022 | September 16, 2022 210 call | $2.95 | $0.30 | $2.65 | |||||||
| 9/1/2022 | October 21, 2022 205 call | $3.00 | $0.55 | $2.45 | |||||||
| 9/22/2022 | October 21, 2022 197 call | $2.10 | $0.15 | $1.95 | |||||||
| 10/12/2022 | November 18, 2022 190 call | $3.10 | $7.45 | ($4.35) | |||||||
| 11/10/2022 | December 16, 2022 205 call | $2.65 | $0.05 | $2.60 | |||||||
| 12/15/2022 | January 20, 2023 200 call | $3.10 | $1.85 | $3.10 | -28 | ||||||
| Totals | $19.50 | $59.67 | 57 | ||||||||
| Transaction Date | Poor Man’s Covered Calls | Original Price | Current Price | LEAPS Price | LEAPS Price | LEAPS Price | Premium Sold | Closing Price | Total Premium | Total Return | Position Delta |
| iShares 20+ Year Treasury Bond ETF (TLT) | $110.56 | $107.11 | (open) | (current) | (closed) | ||||||
| 6/13/2022 | LEAPS January 19, 2024 85 call | $29.10 | $25.70 | ($3.40) | 80 | ||||||
| 6/13/2022 | July 15, 2022 114 call | $1.65 | $2.58 | ($0.93) | |||||||
| 6/30/2022 | August 19, 2022 119 call | $1.95 | $0.23 | $1.72 | |||||||
| 8/11/2022 | September 16, 2022 119 call | $1.16 | $0.10 | $1.06 | |||||||
| 9/1/2022 | October 21, 2022 115 call | $1.42 | $0.23 | $1.19 | |||||||
| 9/22/2022 | October 21, 2022 110.5 call | $0.73 | $0.03 | $0.70 | |||||||
| 10/12/2022 | November 25, 2022 104.5 call | $1.66 | $0.10 | $1.56 | |||||||
| 11/10/2022 | December 16, 2022 100 call | $1.46 | $2.90 | ($1.44) | |||||||
| 11/22/2022 | December 16, 2022 103.5 call | $1.30 | $3.15 | ($1.85) | |||||||
| 12/2/2022 | January 20, 2023 109 call | $1.82 | $2.02 | $1.82 | -41 | ||||||
| Totals | $13.15 | $29.53 | 39 |
Strategy
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.