The AI theme came under heavy pressure last Monday, which weighed on the markets. However, by week’s end the bulls had bought the dip and impressively the S&P 500 had fallen only marginally, the Dow had eked out a small gain, while the Nasdaq “only” lost 1.5%.

The news today is all about the tariffs, but to this point, most things are simply hacking around in a range, so we’re fine holding resilient titles and ditching those that crack. Our biggest thought beyond the headline news or daily reactions is that, unless you’re hopping in and out of things every couple of days, there’s no real money being made of late, with selling on strength seen and headline news causing big moves up and down most days. To be clear, that’s more descriptive than predictive, but until something changes, we favor keeping new positions on the small side, holding some cash and practicing patience waiting for this ping-pong action to stop. We’re leaving our Market Monitor at a level 6 today.

We will say, however, that this week’s list is encouraging—it’s very growth heavy, and even after today’s pothole, many names are in position to get going if the market allows it. Our Top Pick is in the midst of a solid-looking nine-week rest after a huge comeback in the second half of last year.

Tariffs are here, and the market doesn’t like them. But how long are they here for? As this morning’s deal with Mexico to delay them by a month reveals, it’s possible tariffs are being used as more of a scare tactic than a permanent penalty. If so, that would be good for stocks. But the best thing to do with tariffs as an investor is to ignore them and focus on stocks that are performing well. And today, we do just that, adding a promising biotech that caught the attention of Cabot Top Ten Trader Chief Analyst Mike Cintolo.

Details inside.

The AI theme came under heavy pressure Monday of last week, which weighed on the markets. However, by week’s end the bulls had bought the dip and impressively the S&P 500 had fallen only marginally, the Dow had eked out a small gain, while the Nasdaq “only” lost 1.5%.

The AI theme came under heavy pressure Monday of last week, which weighed on the markets. However, by week’s end the bulls had bought the dip and impressively the S&P 500 had fallen only marginally, the Dow had eked out a small gain, while the Nasdaq “only” lost 1.5%.

“More investment does not necessarily lead to more innovation.”

“When doing something, experienced people will tell you without hesitation that you should do it this way, but inexperienced people will have to repeatedly explore and think seriously about how to do it, and then find a solution that suits the current actual situation.”

—Liang Wenfeng, founder of the company that created DeepSeek

As has been the case for the past decade, the fate of cannabis stocks lies largely in the hands of politicians.

Cannabis companies have been getting solid support from state-level politicians. Forty states now allow sales of medical cannabis.

Sure, they are permitting too many stores, and that is putting downward pressure on pricing. At some point, the market sorts that out. Prices will fall to a point where it is no longer that enticing to bring on new supply, yet companies will have gotten lean enough to produce profits. We are not there yet. But we will get there.

Lost in the frenzy surrounding all things AI are companies that fall under the “boring but important” category. This includes producers of everyday things we often take for granted but which are nonetheless crucial for the smooth functioning of countless segments of the economy. To be fair, these otherwise “boring” industries quite often provide investors with outsized opportunities for profit due to their under-the-radar nature.

January was shaping up to be another stellar month for stocks. The S&P 500 closed last week 3.73% higher for the month.

But stocks came crashing down on Monday when a Chinese start-up claimed that its highly popular AI assistant performs equally as well as leading models at much cheaper prices and using far less data. It calls into question the anticipated demand growth for AI.

But the selloff is probably an overreaction. This is the problem with high-flying stocks. Any bad news gets dramatically amplified because euphoria is so easy to disappoint. The AI catalyst is still very real. But it may have gotten ahead of itself. A day like Monday was bound to happen. It also creates opportunity.

In this issue, I highlight one of the best technology stocks on the market. It was riding high for good reasons, rapidly growing profits. Monday’s overreaction prompted the worst selloff of the stock in years. There is likely to be a bounce back and the stock can generate very high-priced calls.

Despite some wobbles early in January, the S&P 500 closed at a new all-time high on Thursday. And even though the indexes pulled back marginally on Friday, by week’s end the S&P 500 had gained 1.7%, the Dow had rallied 1.83% and the Nasdaq had added 1.53% (though the Nasdaq got hit again on Monday, led lower by AI stocks).

We’ll let everyone else fight it out over the meaning and truthfulness of the DeepSeek revelations—as always, we’ll stay focused on the actual evidence, and here’s what we see: First off, the broad AI infrastructure areas look very iffy; the odds favor most chips, networking and electricity stocks are in the so-called penalty box. That said, the rest of the market took on water today but didn’t look abnormal. We do view the dramatic action as a yellow flag but we’re also not panicking as many of the names that had begun to perk up/break out are still acting well enough. We think it’s prudent to drop our Market Monitor back to a level 6 and take things on a stock-by-stock basis from here.

This week’s list does have a couple of AI-related names that got whacked, but the rest are from other areas that look fine. Our Top Pick is a name that looks like it’s finally, decisively changed character. Start small and aim for dips.

Something called DeepSeek out of China helped bring the rally in U.S. stocks to a screeching halt to start the week. Artificial intelligence stocks, in particular, are taking it on the chin, as it appears the Chinese firm may have found a cheaper, just-as-advanced alternative that’s rattling the likes of even Nvidia (NVDA). Chances are, the selling is overdone. But it’s a good time to look for overseas alternatives. And today, we add a Dutch company that plays an essential role in global travel – and one that’s taking advantage of the many missteps of its larger U.S. rival. It’s a stock that was first recommended by Carl Delfeld in Cabot Explorer.

Details inside.

With the Juneteenth Holiday this week and our last update just three business days ago (and right after the FOMC meeting), there is very little to talk about today. So, I’ll keep things short and sweet and we’ll jump right into company-specific updates, of which there are hardly any.

In other words, enjoy a break in the action! They rarely last long.

The market is at all-time highs. But most stocks are undervalued.

That’s the strange but true reality in today’s Magnificent 7/AI-centric bull market. Yes, if you’ve invested in the seven largest mega-caps or a handful of artificial intelligence-related stocks (Broadcom (AVGO), Palantir (PLTR), Super Micro Computer (SMCI), Taiwan Semiconductor (TSM), etc.), you’ve done quite well. But most other sectors have lagged.

This market just continues to forge ever higher. The S&P 500 closed at new all-time highs four times last week. The index is now up 15% YTD, and we’re not even at the halfway point.

Just when it looked like the rally was petering out, the market is having a great June so far. The S&P is up about 5% in June after making four consecutive record closes last week. The index is now up 14% so far this year, and it’s not even half over.

Ammo Inc (POWW) beat on revenue of $40.42M but its EPS of $0.01 per share missed expectations by $0.03. The company experienced sequential revenue growth in the ammunition segment and maintained robust margins in the GunBroker marketplace, but total revenues and gross profit margin were both down year-on-year, influenced by a shift in sales mix and macroeconomic pressures. The year ended with substantial operational cash flow and an improved net working capital position including $55.6M in cash, positioning the company for future growth.

Small caps are off ever so slightly over the last five sessions, though yesterday’s CPI data and Jerome Powell’s press conference/FOMC meeting helped the asset class bounce back from what was a fairly ugly looking four-day slide. The big-picture takeaway here is that the asset class is suffering from the same type of bad breadth malaise that’s keeping a lid on much of the broader market.

Good enough.

That was the resounding sentiment on Wall Street after Wednesday morning’s inflation print came in slightly better than expectations … but still stubbornly above 3% year over year. The headline CPI number for May, 3.3% year over year, was just below the 3.4% economists anticipated; the month-over-month increase (0.2%) was also a bit lighter than expected (0.3%).

Inflation cooled for the second straight month in May, the U.S. labor market seems back to pre-pandemic levels, and the economy is expanding at a low but steady pace.

Therefore, the Fed is holding back on interest rate cuts. Probably the right move. Keep the ammo dry for when it is really needed. This was a solid week for Explorer stocks with all making gains except for a small pullback in Super Micro (SCMI).

Since Halloween, the last seven times I have made a call in Cabot Cannabis Investor to buy the AdvisorShares MSOS 2X Daily (MSOX) in sector weakness, the exchange-traded fund has gone up 68% on average over the next one to seven weeks.

The last time I made a trading call to buy the cannabis sector was on May 29.

Since that was less than two weeks ago and the maximum time to profit after trading calls is seven weeks, I am not too concerned about the flat performance of cannabis stocks since then.

It’s a new high! April was down. May was up. And June has been an up month so far. Hopefully, June will follow through and be another good month, but I’m still expecting a flatter market for a while.

The market goes back and forth with the interest rate narrative. But I don’t expect a resolution on that issue any time soon, or at least for the rest of the summer. Either the economy has to slow, or the Fed is going to at least leave rates where they are. But investors still insist on expecting rate cuts before the end of the year even though the economy looks strong.

Earnings season is largely over, so there were no companies that reported earnings this past week. However, we do have at least one company reporting next week – Ammo, Inc. (POWW). And the next earnings season is frankly just around the corner, with Walgreens Boots Alliance (WBA) announcing they’ll release their next round of results the last week of the month.

WHAT TO DO NOW: With the market’s intermediate-term evidence mixed, you should take things on a stock-by-stock basis—holding what’s working but selling what’s not, while holding some cash as we wait for the market and growth stocks to show their hand. Our Cabot and Growth Tides remain neutral and our Two-Second Indicator is iffy, so even though we do see a few tempting names, we’re going to hold our 35% cash position tonight and see if the bulls can step up for more than a few hours. We have no changes tonight.

We’ve managed to lock in a return of 36.1% in BITO. Not many can say they’ve made money in BITO since the beginning of June 2022. Just another reason why more and more individual investors are flocking to the tried-and-true income wheel approach.

Docebo (DCBO) Tender Offer Thoughts

There is little to no value left in our XLU December 15, 2023, 56 puts. As a result, I’m going to buy them back, lock in profits and immediately sell more premium. I’ll be doing the same in a few other positions as we move throughout the week.

Before I get to our trade in TTE, I just wanted to remind everyone that, per our strategy guidelines, we will be exiting our Dogs and Small Dogs positions over the next two weeks, prior to the December 29, 2023 expiration cycle. I’ll be reentering the new Dogs and Small positions at the onset of 2024. Moreover, I plan to discuss a new variation on how to approach the Dogs.

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.

We have a few more December 15, 2023 positions to roll into the January/February expiration cycle. I will most likely get out of those (DBC, VNQ, TTE, etc.) later this afternoon. Stay tuned!

We’ve held on as long as we could, but we’ve hit our stop loss, so it’s time to close our SPY December 15, 2023, 456/461 trade. Earlier in the week, SPY dropped down to roughly 454, so we thought we were on the dancefloor. Unfortunately, the 454 area acted as a strong area of support throughout the week so we never saw any true decline that would have helped the position.

Let’s try to lengthen out our deltas a little so we can take advantage of any additional upside prior to the December 29, 2023, expiration cycle. If JPM rallies through the 160 strike, we will gladly close out the position for the year, take our profits, and wait for the new year to reestablish our position.

VTI is currently trading for 227.81.

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.