The bulls once again pushed the market higher last week as the S&P 500 gained 0.77%, the Dow was the big winner with a rally of 2.42%, and the Nasdaq rose marginally by 0.38%.

Thank you for subscribing to the Cabot Value Investor. We hope you enjoy reading the December 2023 issue.

Artificial intelligence-inspired investors are partying like it’s 1999. We’re finding attractive value elsewhere, in discarded industrials like our new Buy recommendation, CNH Industrial (CNHI).

Most of the rubber-meets-the-road evidence is positive when it comes to the intermediate-term, that said, short-term, some wobbles and rotation are beginning to creep in—some growth areas (like chips) are weakening while the broad market (small-caps, etc.) are perking up, and after five weeks of strong gains, investor sentiment has gotten a bit comfortable. That doesn’t have us growing more cautious, and in fact, we’re bumping up our Market Monitor to a level 7—though we are still favoring moving gradually and picking your stocks and entry points carefully.

This week’s list has another nice collection of stocks, including everything from precious metals to chemicals to some powerful earnings gaps in the tech space. Our Top Pick is a tech infrastructure name that isn’t early in its run, but after a choppy three months, it appears ready for its next move.

The market continues to thrive as we enter the final month of 2023 – and Cabot Stock of the Week stocks are thriving along with it! A pullback in the coming days and perhaps weeks would make sense on the heels of the market’s banner November, but the long- and intermediate-term trajectory appears up. The potential (likelihood?) that interest rates may have peaked is perhaps the biggest driving force behind the rally. And it’s a big catalyst propelling the stock that we’re adding today, a brand-new recommendation from Mike Cintolo in Cabot Growth Investor.

Details inside.

We have two open positions, both bear call spreads, with the intent of opening up another position this week. My hope is to add a bull put spread or iron condor to the mix, but with implied volatility (IV) mostly low across the board due to extreme short-term overbought conditions, our opportunities, at least at the moment, are limited. I’ve been looking at a few potential volatility plays based purely on IV increasing over the next few months. I’ve also been looking at a few stocks that have IV around the 30% to 35% mark, if not higher. Ultimately, I want to balance out our deltas, as we don’t want to lean too heavily in one direction. At the moment, our deltas are leaning to the short side, so we hope to balance those out a bit as the week progresses.

As we move into the month of December all of our positions continue to thrive. Even if we see a pullback over the next month, unless it’s sharp, we should see some nice gains as we progress through the month. I also hope to add another trade to the portfolio, but I would like to see a reprieve before I sell a few puts. Implied volatility is currently quite low across the board and the market sits in an extreme short-term overbought state.

We have officially entered the earnings doldrums, but that certainly doesn’t mean that opportunities won’t present themselves. For instance, this week Lululemon (LULU) announces earnings and offers a decent opportunity for an iron condor. I’ve gone over a detailed iron condor example in the “Weekly Trade Ideas” section below.

The bulls once again pushed the market higher last week as the S&P 500 gained 0.77%, the Dow was the big winner with a rally of 2.42%, and the Nasdaq rose marginally by 0.38%.

The bulls once again pushed the market higher last week as the S&P 500 gained 0.77%, the Dow was the big winner with a rally of 2.42%, and the Nasdaq rose marginally by 0.38%.

From an intermediate-term perspective, the pieces continue to fall into place for the bulls--recently, our Two-Second Indicator has joined our trend-following indicator on the bullish side of the fence, while things like our Aggression Index and the trend in interest rates remain encouraging. Short-term, we are finally seeing some signs of churning in extended leaders, so we’re continuing to move gradually, picking our stocks and spots carefully. Last week, we did a little more buying in DUOL and started a position in ANET, and today we’re starting one more half-sized stake that will diversify the portfolio a bit.

Cabot Cannabis Investor has delivered several excellent trades in the past month.

* Back on October 31 I was very bullish on the cannabis group which was weak because of the nomination of Rep. Mike Johnson (R-LA) as House speaker. He has always opposed cannabis legislation. I argued there were several other catalysts in the mix regardless of how Congress acted on legal reforms. “Cannabis stocks are a strong buy in the weakness,” I wrote.

I suggested any of the names in our portfolio, or the AdvisorShares Pure U.S. Cannabis (MSOS) exchange-traded fund (ETF) and the leveraged version, AdvisorShares MSOS 2x Daily (MSOX), for simplicity. “I am adding to MSOS and MSOX in the weakness, and I will continue to add, particularly if they get weaker from here.” Since October 31, here’s how those trades have done.

Thank you for subscribing to the Cabot Turnaround Letter. We hope you enjoy reading the December 2023 issue.

Every investor has loser stocks. We discuss two ways to convert this year’s losers into assets and winners, including tax loss selling and buying shares that others have discarded for artificial reasons. Last year’s crop of bounce stocks performed exceptionally well. We discuss five for this year that look promising.

One of our more productive methods for sourcing new ideas is to see what other like-minded investors are buying. We discuss how to refine the vast data in 13F filings and review four from the most recent batch of filings that look attractive.

This month’s Buy recommendation, Fidelity National Information Services (FIS), was used in a February 2023 article about how we evaluate candidates. It was too expensive then, but its recent 26% share price slide and encouraging fundamentals make it attractive to buy now.

Cabot Options Institute Income Trader is focused exclusively on the creating consistent income through a variety of options selling strategies. Whether you have questions about selling puts, covered strangles, jade lizards or our income wheel approach, Andy is more than happy to help you steepen your learning curve in this live event.

Cannabis stocks are getting sold down as if the industry has no future.

This makes no sense, but there is a good explanation. Traders and investors bought the group heavily on expectations that cannabis sector banking reform would be passed in Congress by year’s end. The AdvisorShares Pure U.S. Cannabis (MSOS) exchange-traded fund (ETF) saw five to ten times normal volume on four days in early December, following two months of accumulation.

After good news on inflation, the market awaits the Fed’s rate decision and comments later today. It could lead to a rally or a fizzle.

Inflation for November was less than expected with CPI at 7.1% versus an expected 7.3% and core inflation at 6.0% versus an expected 6.1%. It’s welcome news that inflation is moving lower and has probably peaked, down from 9.1% in June. But it’s still a long way from the 2% Fed target.

There are only 13 trading days left in the calendar year. This means we are entering what is basically a reality distortion field … in which the closer we get to year’s end, the more that calendar-driven technical motivations, rather than valuations and fundamentals, drive share prices. These motivations create artificial selling pressure that can drive already-weak shares down even further.

This week there were no earnings reports or ratings changes, so most of the note and podcast cover relevant news on our recommended companies.

This is the week the market began to think bad economic news might just be bad for stocks, even if it’s “good” in the eyes of the Fed.

Good economic news continues to be interpreted as bad for stocks because it suggests the Fed has “more work to do.”

Stay cautious and alert. Growth stocks and the market took a hit earlier this week, though so far most potential leaders have held support and bounced back somewhat. Overall, not much has changed—our Cabot Tides are positive, and more names are acting properly, but the rest of our indicators are negative, and few stocks are moving higher with any consistency.

Centrus Energy (LEU) shares retraced from 38 to 34 as three hedge funds were long Centrus in the third quarter, while six hedge funds were long the stock in the previous quarter. Their total stake values were $14.9 million and $14.7 million, respectively. This is still a buy for aggressive investors.

The market has started to stink up the place again because of better-than-expected economic news. I kid you not.

Strong jobs growth and continuing strength in pockets of the economy are spoiling recent investor optimism. Economic strength is not what the Fed wants to see in its battle against inflation. Strength in the economy indicates that perhaps the Fed will have to remain aggressive for longer to slow down the economy and snuff out inflation.

It’s been a rough week so far as investors are severely disappointed over the good economic news.

Strong jobs growth and continuing strength in pockets of the economy is spoiling recent investor optimism. Economic strength is not what the Fed wants to see in its battle against inflation. Strength in the economy indicates that perhaps the Fed will have to remain aggressive for longer to slow down the economy and snuff out inflation.

The big news last week was the S&P 500 closed above its 200-day moving average for the first time in almost eight months.

When the S&P 500 trades below its 200-day moving average for over six months and then breaks through that threshold, the S&P 500 is up 18.8% on average over the next 12 months.

Our BITO 16.5 calls for the September 23, 2022, expiration cycle are essentially worthless. Same goes for our GDX 28 calls.

Today, given the extreme oversold readings, I’m going to open a position in the Nasdaq 100 ETF (QQQ), more specifically a bull put spread. I also intend on adding several more positions for the October 21 expiration cycle over the coming days.

I will be rolling several more of our short calls at the beginning of next week. Stay tuned as I will be sending out several trade alerts on Tuesday and Wednesday.

The market today is like fertilizer for grey hair. In theory, it should be stronger than it has been. After all, this morning’s manufacturing data showed prices continue to come down (i.e., supply/demand balance getting better) while new orders remain stable. We also see oil prices down. So, inflation pressures seem to be easing (still) but growth isn’t tanking (yet).

We currently own the TLT January 19, 2024, 85 call LEAPS contract at $29.10. You must own LEAPS in order to use this strategy.

We currently own the GLD January 19, 2024, 145 call LEAPS contract at $37.00. You must own LEAPS in order to use this strategy.

Several of the short calls in our poor man’s covered call positions have little to no value due to the sharp decline that began in earnest last Friday. As a result, I want to buy back several of our short call positions and sell more premium while volatility is high. I’m going to start with SPY, but expect to see more alerts before we close out the week.

The market’s rally continues to take on water, and while it’s not a wipeout, many of our intermediate-term indicators are back on the fence.

With 18 days left and little to no value left in our bear call spread, I have decided to take all risk off the table, lock in profits and move on to the next opportunity.

oday, we are moving shares of Lamb Weston Holdings (LW) from Buy to Sell.

There has been a growing number of market-moving headlines for uranium in the last few days, prompting us to give the energy metal a closer look.

As part of the Income Wheel approach, we allowed our Pfizer (PFE) puts to expire in-the-money at expiration last week. As a result, we were issued shares at our chosen put strike of 49.

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.