Markets and especially the tech-heavy Nasdaq index led by semiconductor stocks sold off yesterday. Reasons include perceived rising protectionist and isolationist pressures in both Europe and America. Meanwhile, small-cap stocks continue to rally, and some overseas markets were also up.

As one would expect, our tech stocks pulled back somewhat while all three of our dominator stocks gained ground this week.

In the July Issue of Cabot Early Opportunities, we continue to lean into the strong market and focus our attention on the small end of the market cap curve.

We have small and mid-cap players in the software, semiconductor, green energy, industrial tech and AdTech spheres, each of which has compelling reasons propelling shares higher.

As always, there should be something for everybody.

While I rarely highlight the gains/losses of the Russell 2000 (IWM) as the group has been mostly a dog for the last year-plus, last week the small-cap index came alive on Thursday and Friday, far outpacing its index peers with a gain of 5.25% on the week.

And while the other indexes couldn’t keep up with the IWM, the S&P 500 gained 0.8%, the Dow rallied 1.5%, and the Nasdaq fell 0.35%.

While I rarely highlight the gains/losses of the Russell 2000 (IWM) as the group has been mostly a dog for the last year-plus, last week the small-cap index came alive on Thursday and Friday, far outpacing its index peers with a gain of 5.25% on the week.

And while the other indexes couldn’t keep up with the IWM the S&P 500 gained 0.8%, the Dow rallied 1.5%, and the Nasdaq fell 0.35%.

While I rarely highlight the gains/losses of the Russell 2000 (IWM) as the group has been mostly a dog for the last year-plus, last week the small-cap index came alive on Thursday and Friday, far outpacing its index peers with a gain of 5.25% on the week.

And while the other indexes couldn’t keep up with the IWM the S&P 500 gained 0.8%, the Dow rallied 1.5%, and the Nasdaq fell 0.35%.

We rarely draw major conclusions from a couple of days of trading, but there’s no doubt the action since last week’s inflation report is very interesting, with the broad market coming alive, though that’s happening as some extended tech leaders wobble a bit. All in all, the intermediate-term trend is turning up and we are seeing a few more names emerge, though to us, it remains a stock-by-stock environment, so we’re focused on great setups and potential breakouts in stocks showing relative strength. We’ll leave our Market Monitor at a level 7.

This week’s list is very eclectic, with everything from precious metals to bull market stocks to AI plays to biotech—a sign the broad market is kicking into gear. Our Top Pick is a mid-cap in the biotech space with very strong sales and earnings projections as their new drug grows rapidly.

The bull market finally expanded to more than just a select few names last week, with small caps, Chinese stocks and other sectors finally getting some love. It’s a good sign for the rally’s longevity and could be a boon for our diverse portfolio. So today, we add another non-AI, non-tech stock that’s been attracting some overdue buying. It’s a big-name, resilient growth company whose stock consistently outperforms the market – and yet is undervalued at the moment. It’s a recommendation I just shared with my Cabot Value Investor readers, and today it joins our Stock of the Week portfolio.

We’ve been around a while, but this is one of the most unusual environments we’ve seen, with today’s major rotational action another example of a pickup in volatility while few names are really making much sustained progress. Taking things on a stock-by-stock basis, we’ve pared back some in recent weeks, yet because most of the names we’ve been targeting for buying are just sitting there, has led to an increasing cash position--now up to 41% after a partial sale of Cava Group earlier this week.

The good news is that the mostly sideways action from much of the market has led to many setups heading into earnings season, which results in a straightforward game plan -- we’re holding our cash tonight, but we’re aiming to grab some fresh breakouts if they occur.

The holiday-shortened week was mostly quiet outside of the AI/Semiconductors plays, which once again rose nicely. As for the rest of the market, by the numbers below it was a good week, though under the surface it feels like not many stocks are truly rallying.


For the week, the S&P 500 gained 1.35%, the Dow rose marginally, and the Nasdaq added another 2.9%.

The holiday-shortened week was mostly quiet outside of the AI/Semiconductors plays, which once again rose nicely. As for the rest of the market, by the numbers below it was a good week, though under the surface it feels like not many stocks are truly rallying.



For the week, the S&P 500 gained 1.35%, the Dow rose marginally, and the Nasdaq added another 2.9%.

Clean energy is the future. But not for a while.

This country and the world still rely heavily on fossil fuels for more than 80% of energy needs, and these conventional energy sources will likely remain dominant for decades. Meanwhile, many stocks of companies that benefit have strong earnings and great value.

Fossil fuel proportions are expected to move toward natural gas in the years ahead. A recent study estimates that global natural gas demand will soar 34% between 2022 and 2050 with the strongest growth in the natural gas realm to be liquid natural gas (LNG), with demand expected to more than double in the same time frame.

In this issue, I highlight one of the best natural gas companies on the market. It is a newly formed company in the business of exporting abundant and cheap American natural gas overseas. It’s big business. In a short time, this company has become one of the world’s largest natural gas exporters.

Third-quarter earnings season is only days away. PepsiCo (PEP) will kick off the season on Tuesday, October 10. The “official” start is generally considered to be on Friday, October 13, when major financials like recommended stock Citigroup (C), as well as JPMorgan (JPM), Wells Fargo & Company (WFC) and Blackrock (BLK) report their results. For the S&P 500 members, Tuesdays, Wednesdays, and Thursdays are the busiest, as 20-50 companies report on each of those days. While weekends are almost cleanly bereft of reports, Berkshire Hathaway (BRK/B) provides a stand-out exception (estimated to report on November 4).

The market was already struggling after the Fed’s “higher for longer” comment about interest rates. Now it’s getting hit with ugly headlines regarding the situation in Israel.

Geopolitical risks are always out there, and they act up occasionally. Hopefully, this new Middle East situation won’t expand into a wider conflict. There is also the Ukraine conflict. These are risks that could develop into a much bigger problem. Even if they don’t, there is still the interest rate and inflation situation.

This market is officially flirting with ugly. The S&P is now down about 7% from the 52-week high and not far from correction territory, down 10% from the high.

The selling intensified over the last week after the Fed struck an unexpectedly hawkish tone at last week’s meeting. The gist of the Fed’s message is that rates may well go higher and will stay higher for longer. The statement pours cold water on the notion that rates will be cut in the near future and reinforces the realization that higher rates are here to stay.

Even the temporarily averted government shutdown can’t do much for this market. The S&P 500 is now down more than 7% from the 52-week high and may be headed to correction territory, down 10% or more.

The main problem is high interest rates. The benchmark ten-year Treasury rate continues to rise and just hit a new 16-year high near 4.7%. The Fed’s recent statement that interest rates will remain higher for longer continues to demoralize investors.

There were no earnings this past week, but earnings season is just around the corner. The beleaguered Walgreens Boots Alliance (WBA), without a permanent CEO, kicks off our season with its Thursday, October 12 report, followed the next day by Wells Fargo (WFC) and Citigroup (C).

WHAT TO DO NOW: Remain cautious, as there’s not much change with our indicators or stance—the intermediate-term trend of most stocks, sectors and indexes is down, and while sentiment is very bearish and a decent number of growth stocks are holding well, it’s best to stay close to shore until the buyers return. Yesterday, we sold one-third of our remaining position in ProShares S&P 500 Fund (SSO) and are now holding about 55% in cash.

The market has been on edge since the Fed’s hawkish tone and updated Summary of Economic Projections (SEP) last week. But if we can get oil and interest rates to back off a little and some stock-specific catalysts during the upcoming Q3 earnings season maybe we can finally take our macroeconomist hats off and get back to doing what we’d rather do. Which is talk about some of the great small growth stories out there!

The market and most Explorer positions struggled a bit this week except Conoco (COP), which is benefitting from crude oil hitting 2023 highs. Consumers and businesses are looking forward to the Fed ending interest rate increases as the inflation fight continues. Food inflation slowed to about 3% year-over-year in August, down from a troubling 13% a year earlier. Those topics, plus Japan, China and the electric vehicle arms race, in today’s Cabot Explorer update.

This market is officially flirting with ugly. The S&P is now down about 7% from the 52-week high and not far from correction territory, down 10% from the high.

The selling intensified over the last week after the Fed struck an unexpectedly hawkish tone at last week’s meeting. The gist of the Fed’s message is that rates may well go higher and will stay higher for longer. The statement pours cold water on the notion that rates will be cut in the near future and reinforces the realization that higher rates are here to stay.

Cisco Systems (CSCO) announced a huge $28 billion deal for security software specialist Splunk (SPLK). Regardless of concerns over the economy, rising interest rates, the incipient tech-driven Cold War II, rising government focus on anti-trust and other macro issues, there will always be blockbuster deals. We dig into the deal in our comments below on Cisco.

This week there were no earnings reports or ratings changes.

We currently own the AAPL January 17, 2025, 135 call LEAPS contract at $48.00. You must own LEAPS in order to use this strategy.

I want to add some additional downside exposure; so, with QQQ trading for 347.13, I want to place a short-term bear call spread going out 51 days and outside of the expected range to the upside, or 368. My intent is to take off the trade well before the July 21, 2023, expiration date.

After recently locking in profits on our SPY June 16, 2023, 430/435 bear call spread, it’s time to look towards selling some premium for the July 21, 2023, expiration cycle with 56 days until expiration (dte).

I will be exiting the Costco (COST) trade today.

ELF and SNOW Report

Costco (COST) is due to announce earnings Thursday after the closing bell.

We currently own the DBC January 17, 2025, 21 call LEAPS contract at $4.80. You must own LEAPS in order to use this strategy.

WFC rallied over the past expiration cycle and as a result, our May 19, 2023, 40 calls were assigned, and our entire position was “called” away last week. We made 10.76% on the trade.

Moving Ironwood Pharmaceuticals (IRWD) to Sell

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.