The market is in a holding pattern, but holding patterns aren’t bad things when they come on the heels of the kind of run-up we saw in November and the first three weeks of December. Besides, many of the stocks in our Stock of the Week portfolio aren’t in a holding pattern, with 10 of them (!) trading at either 52-week or all-time highs. So today, we add another high-upside position that should benefit from another banner year for the travel industry. Mike Cintolo recently recommended the stock to his Cabot Top Ten Trader audience.

We have three positions due to expire this week, all of which are profitable positions. As a result, I’ll be selling more premium early next week to replace our expiring positions and hopefully adding another one to two positions to give us eight total income-producing positions in our portfolio. Otherwise, we will continue to allow our wheel-based approach to work its magic. So far, we’ve managed to reap a total return of 114.7% since initiating our Income Trader service for Cabot Wealth readers 19 months ago.

We are completely flat at the moment.

Volatility continues to float between a fairly tight range of 12 to 14 which makes it challenging to sell premium, at least in the major indices. If we see a push to 15 or higher, I’ll most likely add a premium selling play in SPY. Until then, my focus is sector ETFs and individual stocks. I’m leaning more towards the former at the moment with earnings season upon us. But I’m definitely looking to sell premium shortly after a few key announcements in some of the big blue-chip stocks over the next few weeks in Microsoft (MFST), Visa (V) and a few others.

As I discussed in our first subscriber-only webinar of 2024, the week after the initial big banks announce is slow. Yes, there are a few more big banks that announced prior to the opening bell (GS, MS) this morning, but, as we talked about, we didn’t really want to hold an earnings-based position over the long weekend.

With expiration upon us, we have several trades to place during the holiday-shortened week. All but one position in our two “passive” portfolios (All-Weather, Yale Endowment) have short calls that need to be rolled. Additionally, there is a good chance that I will sell my 2025 LEAPS and extend my duration through buying new 2026 LEAPS. I like to do this when my LEAPS have 10-12 months’ worth of life. It is possible that I will wait one more expiration cycle before making the transition, but as always, I’ll let everyone know in my numerous trade alerts this week. It’s going to be a busy expiration cycle and a great opportunity to add some new positions.

The three leading indexes again made a run at new highs last week as the S&P 500 gained 1.75%, the Dow rallied 0.7% and the Nasdaq added 2.88%.

The three leading indexes again made a run at new highs last week as the S&P 500 gained 1.75%, the Dow rallied 0.7% and the Nasdaq added 2.88%.

It’s turning out to be a typical volatile January, with last week’s harsh selling among leading stocks leading to this week’s strong snapback that’s seen many leaders (including a few names we own) roar back to new high ground. That’s not to say the wobbles are over--in fact, we’d half-expect some more wiggles given earnings season is just getting started. But overall, things are volatile, but still bullish, so while we’re not flooring the accelerator, we are staying positive.


Last week, we sold half of one stock and placed another on Hold, but tonight, we’re going to start a new half-sized position in an old (from last year) favorite that we think got derailed mostly by the market environment last summer and fall--and now looks poised to do well if the market holds together.

Welcome to our TOP PICKS issue! For this issue, I asked the Cabot analysts to give me a couple of their top picks for 2024. I hope you will be pleased with the diversity—market-cap and sector-wise—that the analysts have offered.

But first, let’s talk about the market.

Things look good for 2024. Inflation is down, interest rates have likely peaked, and there is no sign of recession. But you never know. It’s a tough game to predict the future of the market. However, certain trends are likely to persist.

It’s a good bet that interest rates have peaked. Sure, they could edge higher from here. But they are unlikely to soar to new highs past 5% for the 10-year Treasury. The situation would have to completely reverse for that to happen. Meanwhile, stocks that have been dragged lower by rising interest rates have come alive again.

These stocks, which have strong track records of market outperformance, are at historically cheap valuations, have established upward momentum, and are positioned ahead of a likely slowing economy.

Also, artificial intelligence is here to stay. Businesses must spend on it not only for competitive advantage, but as a matter of survival. The new technology will continue to be a strong growth catalyst for technology stocks. And the trend will continue regardless of what the Fed does, or the state of the economy, or who is elected president.

In this issue, I highlight a fantastic dividend stock whose long record of strong performance has been interrupted these last two years. It’s also a company that focuses on technology and will surely benefit from the proliferation of AI in the years ahead. The timing for this stock should be outstanding.

2024 got off to a somewhat rocky start as the S&P 500 fell 1.8%, the Dow lost 0.6% and the Nasdaq lost 3.5% last week. And while the indexes fell there is rarely much to learn from the first week of the year as it is routinely “wonky,” with traders rotating from one sector to the next, and tax-related trading moving money out of recent winners.

Heads up: Because of MLK Day, next week’s issue will be published next Tuesday (January 16) after the close.

As for the market, we don’t want to repeat ourselves, but early January is known for sharp moves, and that might be playing out now. We’re not ignoring the short-term gyrations, especially if a stock really cracks key support, and, frankly, we’d expect some more tossing and turning, but we advise focusing more on the intermediate term—and on that front, the vast majority of evidence remains in the bull camp. We’re going to nudge our Market Monitor down to a level 7 to respect the wobbles we’ve seen, but overall we’re leaning bullish until the evidence changes.

This week’s list is an interesting one, with a batch of proven performers along with some off-the-bottom and more speculative situations. Our Top Pick is a name that was left for dead during the bear phase but has the makings of a powerful turnaround as revenue growth accelerates from modest levels and some newer offerings take root.

A few weeks ago, we introduced the Gartner Hype Cycle, which traces the path that all tech companies follow in what essentially is an immutable law of tech investing. Currently, tech stocks have passed the Peak of Inflated Expectations and are sliding down to the Trough of Disillusionment. A few will ascend back to prosperity along the “Slope of Enlightenment” if they maintain both their relevance and their competitive edge. But most will lose one or both of these traits and thus continue downward in what could be labeled the “Decline into Oblivion.”

Stocks are bracing for the January inflation report, which comes out today. The number could determine the next thrust of the market.

It’s been a good year so far for stocks, despite the slight pullback last week, as investors embrace the notion of falling inflation and a Fed that will finish raising interest rates around midyear. But a bad inflation report could put the kibosh on that optimism and send stocks reeling.

This week, we comment on earnings from Adient (ADNT), Brookfield Re (BANR), Brookfield Asset Management (BAM), Goodyear Tire (GT), Mattel (MAT), Newell Brands (NWL) and Western Union (WU).


Next week, Toshiba (TOSYY), TreeHouse Foods (THS), Conduent (CNDT), Ironwood Pharmaceuticals (IRWD) and Organon (OGN) report earnings.

This week has been taking place in the shadow of last week’s market-moving events.

Of course, I’m talking about the FOMC meeting and the resulting 25bps hike, followed by Jerome Powell’s press conference where the term “disinflation” reverberated around the conference room over and over. The event sent the market higher in a risk-on rally that extended the move from the day before.

Throughout U.S. history, federalists and states’ rights advocates have battled it out. Federalists believe in strong centralized power. The other side wants issues to get resolved locally. Federalists are usually on the left, and states’ rights advocates are normally conservatives. But not always. It depends on the issue.

The market is making some noise so far this year. And in a good way. The S&P 500 is 7.7% higher and the Nasdaq is up 14.7% YTD. Is this real, or just another head fake?


The rally is being prompted by increasing optimism of a soft landing, where inflation falls without the economy falling into recession. Previously pessimistic pundits are now embracing the possibility. And there is some evidence to back up the soft-landing scenario.

This week, we comment on earnings from Janus Henderson Group (JHG), Meta Platforms (META), M/I Homes (MHO), Polaris Industries (PII), Vodafone (VOD) and Western Digital (WDC).


Next week brings earnings from Western Union (WU), Mattel (MAT), Brookfield Re (BANR), Goodyear Tire (GT) and Newell Brands (NWL).

WHAT TO DO NOW: The market continues to improve its standing, with our Cabot Tides now positive and, barring a meltdown tomorrow, a green light is likely from our Cabot Trend Lines, too. Individual stocks remain trickier, especially on the growth side of things, so we’re not cannonballing into the pool. But with things looking better we’re continuing with our path of putting money to work. Tonight, we’re adding a new half-sized position in Las Vegas Sands (LVS), filling out our stake in Academy Sports (ASO), and putting another 3% position into ProShares S&P 500 Fund (SSO). That should leave us with around 50% cash; we hope to deploy more of that in the days ahead.

It is only a month into 2023 but playing safe has not paid off as the Nasdaq 100 (QQQ) is the best-performing U.S. index ETF with a gain of 10.6% thus far. The small-cap Russell 2,000 (IWM) is next, up 9.8%. The Dow Jones 30 (DIA) – which fared the best in 2022 – is up only 2.95%.

The market is doing everything it can so far this year to be unlike 2022. It’s up. And the best performing sectors are cyclical.

So far this year, the S&P 500 is up about 5% and the technology stock-heavy Nasdaq is up almost 10% in just a month. Not only are the indexes higher but they are being driven by last year’s worst performing sectors, technology and consumer discretionary.

As discussed in our weekly issue this week, and on our weekly call last Friday, I will be taking a position in Disney (DIS) today. DIS is due to announce earnings after the closing bell today (November 8). The stock is currently trading for 99.95.

With the November 18, 2022 expiration cycle only 11 days away, we need to start rolling a few of our positions. I plan on rolling the majority of our November short calls this week. Expect to see two to three more alerts as the week progresses.

I will be exiting the Starbucks (SBUX) trade today.

We’ve had a few earnings reports lately that have been delivered under the cloud of the FOMC meeting and press conference (Wednesday). During that event, Fed Chair Powell opened the door to a slower pace of interest rate hikes starting in December but suggested the terminal rate (how high the Fed goes during this cycle) may be higher than previously expected and last for longer than previously expected.

Procept (PRCT) beat on the top line and missed on the bottom line. Revenue grew 135% to $20.3 million ($3.1 million beat) while EPS of -$0.51 missed by $0.03.

As discussed in our weekly issue, and on our weekly call, I will be taking a position in Starbucks (SBUX) today. SBUX is due to announce earnings after the closing bell today (November 3). The stock is currently trading for 85.26.

In today’s trade alert I want to start out by selling puts in PFE with the intent of eventually wheeling into the position. Here is a quick review of the wheeling process.

Of the many scenarios I considered for Enovix (ENVX) following Q3 earnings, seeing the stock down 40% was way down the list. Clearly the risks are relatively high with a stock like this – not unlike an early-stage biotech company – but so too are the potential rewards.

We’ve had TransMedics (TMDX) for just two months and the stock has traded up 45% - 50% in that time frame, with very little volatility.

I’ve been trying to figure out a way to efficiently share expected earnings dates, consensus earnings expectations and other key data points with you. In that effort, I’ve programmed a spreadsheet to pull data from one of my sources (image below).

WHAT TO DO NOW: The market has been doing fairly well of late, so much so that our Cabot Tides are on the verge of a green light. That said, individual stocks remain hit or miss at best; we had one gap up strongly yesterday, but today, Wolfspeed (WOLF) is disintegrating after earnings—we’re forced to sell our half-sized position today. Details below—and we’ll have far more in tonight’s regular update.

I will be exiting the Mastercard (MA) trade today. I will discuss the trade in greater detail in our subscriber-exclusive webinar at noon ET tomorrow, October 28.

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.