In the October Issue of Cabot Early Opportunities, I dig into a group of software companies that have upside potential from AI, automation and security. I also feature a diversified bioprocessing and advanced materials company that’s drawing attention right now and go deeper into a very small industrial company that few investors have ever heard of.

As always, there’s something for everybody!

Ahead of the long holiday weekend the market had yet another good week. The S&P 500 gained 1.75%, the Dow rallied 1.5%, and the Nasdaq rose another 1.9%.

This week in an attempt to diversify the portfolio we are adding an energy play.

The story remains mostly the same in the market as it has for the past few weeks: The intermediate-term trend for nearly all major indexes and the vast majority of individual stocks is pointed down. That said, there also are a decent number of stocks holding up fairly well—and with earnings season starting in a major way this week, the potential is there for some leadership to develop if we see some strong upside gaps following reports. We’re all for it happening, but overall it’s best to remain cautious as the market attempts to turn the corner. Once again, we’ll leave our Market Monitor at a level 5.

This week’s list has a wide array of good-looking names, though for our Top Pick we’re going with a liquid leader that, while not in the first inning of its run, acts like it wants to go higher.

Stocks are showing signs of strength as we dive head-first into third-quarter earnings season. Will the latest round of company reports give markets the nudge they need to enter their first substantive rally since mid-summer? Or will they douse the rally with cold water before it really even begins? We’ll have our answer soon. In the meantime, in case it’s the latter, today we add a reliable dividend payer that’s been gaining traction thanks to the restored global supply chain. It’s a brand-new recommendation from Cabot Dividend Investor’s Tom Hutchinson.

Details inside.

We added a November 17, 2023, bull put spread in SPY last week, which gives us three positions. The addition of our bull put spread essentially forms another iron condor, although I will be managing the bear call spread and bull put spread in SPY separately.

Expiration is upon us, and three of our six positions are due to expire this week.

I plan to buy back our calls in WFC, as they are essentially worthless, lock in some profits and immediately sell more call premium.

As for our GDX covered call position, the current probability is basically 50%, so we are in coin toss territory. I’ll update my thoughts on the position, with any necessary alerts, as the week progresses.

Earnings season kicked off late last week with the big banks leading the way. We decided to place our first trade of the season in JPMorgan Chase (JPM) by using a 14.5-point range, with our short strikes at 152.5 and 138. We felt comfortable with the range as it was not only well outside of the expected range (141 – 151) for JPM, but covered, on a percentage basis, all earnings moves going back to October 2006. These are the type of setups we prefer to trade.

The market rally in 2023 and recent pullback have left the All-Weather portfolio up a respectable 4.5%, with our poor man’s covered call in the Vanguard Total Stock Market ETF (VTI) continuing to do the heavy lifting, up 21.4%. The S&P 500 is flat over the same time frame.

Our SPDR Gold Shares ETF (GLD) position has been resurgent of late. After being down roughly 20%, our poor man’s covered call position in GLD now sits 7% higher.

Not surprisingly this past week had many ups and downs, as the market responded well to bad news early in the week and then gave up some of those gains on Friday. By week’s end the S&P 500 had gained 0.46%, the Dow had risen by 0.79% and the Nasdaq had fallen marginally.

Not surprisingly this past week had many ups and downs, as the market responded well to bad news early in the week and then gave up some of those gains on Friday. By week’s end the S&P 500 had gained 0.46%, the Dow had risen by 0.79% and the Nasdaq had fallen marginally.

Investors weren’t surprised by the Federal Reserve’s decision to hold rates steady, but they also didn’t react by ramping up their stock purchases—too much uncertainty what with the election rhetoric heating up and the turmoil in Congress, after Kevin McCarthy was unceremoniously ousted as Speaker. And now, we have the war in Israel.

It’s a confusing market, to say the least. Six months from now we could be in an environment of high rates and sticky inflation, or we could be spiraling toward recession, or anything in between. And stock sector performance is highly dependent on which situation unfolds.

Forget trying to predict the near-term market gyrations, or the Fed, or GDP. Instead, let’s focus on the bigger picture and what we do know. For example, know for a fact the population is aging at warp speed. The population is older than it has ever been all over the world. And the trend is accelerating.

We are in the midst of a tectonic shift in the human population that will have a profound effect on the market and economy. Companies that benefit from this megatrend will have a huge advantage. It’s not an accident that pharmaceutical stocks Eli Lilly (LLY) and AbbVie Inc. (ABBV) are the best performing stocks in the portfolio.

In this issue I highlight the stock of a company that serves a vital role in the pharmaceutical supply chain. It operates a near monopoly that grows every year. Performance has been spectacular and there is every reason to believe the good times will continue.

The latest week of action suggests the market-wide bearishness is affecting Greentech, with only 6% of the U.S. listed stocks in our universe posting gains since our issue hit your inbox last Wednesday. At that time, we said Greentech is in a zone of support. It still is, but today’s early trading is pushing the sector toward testing a lower trendline we see as a crucial support level. We’re now also about a 6% decline from current levels to a test of the 27-month low set in May. Those two levels provide a band of support at 42-40 for PBW and, as our proxy for the Greentech sector, that’s important support we want to see hold.

Things haven’t been pretty in this market, to say the least. The summer rally topped in the middle of August, and it’s been downhill ever since. In September, the selloff became more inclusive and took just about everything down, including previously buoyant defensive stocks.
The main catalyst for the selling was the August inflation numbers that came out in September. Core inflation was far worse than expected, at a time when investors were hopeful that inflation had already peaked and there would be a light at the end of the tunnel. The market, which doesn’t take disappointment well, has since priced away most of that hope.

Stocks, of course, continue to tumble. Investors’ plates are overflowing with fears ranging from inflation to trade/military wars to financial collapse to the upcoming midterm elections in the United States.

• Ethereum Name Service (ENS) is up 7.5% this week while global markets are down
• FTT, the native token of crypto exchange FTX, surged 7% after a report that payment giant Visa (V) has partnered with the exchange to roll out crypto debit cards. “Even though values have come down there’s still steady interest in crypto,” Visa Chief Financial Officer Vasant Prabhu told CNBC
• Deloitte predicts 75% of merchants are currently looking to adopt cryptocurrencies as part of their digital payment strategies

For our recommended stocks, earnings season starts next week, led off by Walgreens Boots Alliance (WBA) on Thursday, October 13 and Wells Fargo (WFC) on Friday, October 14. The following week Mattel (MAT) and Nokia (NOK) report earnings. The earnings deluge for our companies starts the following week on October 24.

For our recommended stocks, earnings season starts next week, led off by Walgreens Boots Alliance (WBA) on Thursday, October 13 and Wells Fargo (WFC) on Friday, October 14. The following week Mattel (MAT) and Nokia (NOK) report earnings. The earnings deluge for our companies starts the following week on October 24.

Stocks struggled back from early losses yesterday after blue chips posted their biggest two-day gains in more than two years.

Explorer stocks had a good week with most up nicely and Infineon (IFFNY) up about 18%.

Perhaps the best indicator of where the U.S. and global economy is going are commodity prices. For example, copper prices are gaining ground though they are still far from highs reached earlier this year.

After an awful September and third quarter, the market roared back earlier this week on bad economic news.

A bad manufacturing and employment report indicative of a declining economy sent Treasury yields lower and stocks higher. The reason is that the sooner the economy rolls over the sooner the Fed will be done hiking and the sooner the market will recover. If we can just get on with a recession, this high inflation and aggressive Fed misery will end, and a new bull market can begin.

I love Twitter. The social media platform, not the stock.
While it’s easy to get lost “doom scrolling” on Twitter, I find it to be an incredibly helpful investment tool.

It’s been a furious rally so far this week. It’s only lunchtime on Tuesday. But I’ll take it.
September was an abysmal month, in a rotten third quarter, in an awful 2022. Investors can’t contend with persistent high inflation, a hawkish Fed, and a recession. The most recent selloff took just about every stock down with it.

There’s no disputing that gold has been one of this year’s most “boring” markets. What started as a promising New Year—with investors almost unanimously expecting inflation to skyrocket (thereby boosting gold’s appeal)—has mostly seen rising interest rates and a strengthening dollar consistently undermine interest in the metal.

The largest lender in the U.S. is now using blockchain. The bank also just announced they plan to hire about 2,000 more software developers worldwide by the end of the year according to Lori Beer, the chief information officer. JPM is making huge investments in computer science while other competitor financial institutions have lagged. JPM plans to spend $14 billion dollar on technology this year.

Today, I’m going to issue my first alert, but it’s going to be a bit of a dress rehearsal. I’m going to follow the trade per usual with an opening and closing alert, but I want to go through the process the first time, step by step, so everyone has an understanding of what to expect going forward.

Our PFE puts closed worthless last Friday. As a result, we were able to lock in a 1.30% return. Certainly not a home run, but definitely the beginning of piling up premium in the market stalwart.

So, in today’s trade alert, I want to sell more puts in PFE with the intent of eventually wheeling into the position.

As I’ve been stating over the past few weeks, gold and energy look like an interesting short-term setup given the extreme oversold levels.

Today, given the extreme oversold readings, I’m going to open a position in the SPDR Gold ETF (GLD), more specifically a bull put spread.

I’ve decided to go ahead and buy back our short calls in DBC and GLD for the opportunity to sell more premium in August. Both short calls in DBC and GLD have little to no premium left, so now is as good a time as ever to sell more premium in both underlying ETFs.

In today’s trade alert, like my last one, I want to start out by selling cash-secured puts with the intent of eventually wheeling into the position.
This will make our fifth position in the Income Wheel Portfolio. I’m still looking for a few good candidates for a Jade Lizard or two, but I remain cautious given the current market environment. Moreover, I continue to try to and create a good mix of stocks with different levels of implied volatility.

We’ve been sitting on the sidelines for about a week, staying fairly cautious, while the market continues to vacillate wildly.
We currently have one trade open, a SPY bear call spread at the 405/410 call strikes due to expire in 29 days. The trade currently sits with a probability of success over 89%, so we feel good about this one at the moment.

Last week we finished opening our final position in the Yale Endowment Portfolio. As it stands, we now have two portfolios up and running.

Today we are adding the last of the Yale Endowment Portfolio positions. So far, we’ve ramped up both passive portfolios, All-Weather and Yale Endowment, and will be focusing on adding a few positions in the active portfolios (Growth-Value and Patient) next week.

Before we get to the trades today, I want to discuss an important topic, risk management.

Since we started the All-Weather portfolio, roughly three weeks ago, the S&P 500 is down roughly 9%. And last week was one of the worst in market history. Yet, our All-Weather portfolio is up roughly 2%, proving not only the power of the All-Weather approach, but also the poor man’s covered call strategy.

We recently locked in two profitable trades in SPY and XOP. Today, we are going to go back to the well and place another bear call spread in the SPDR S&P 500 ETF (SPY). Implied volatility is still inflated.

In today’s trade alert, like my last one, I want to start out by selling cash-secured puts with the intent of eventually wheeling into the position.
This will make our fourth position in the Income Wheel Portfolio. Our goal is to ramp up to five to ten. As for our open positions, you can read my thoughts in the previous issue, or watch the webinar from last week.

We continue to take a patient approach to ramping up our portfolios, given the current market conditions.
Last week was one of the worst weeks we’ve seen in quite some time, so we decided to sit on the sidelines and allow the carnage to unfold without adding any new positions.


That being said, our All-Weather portfolio performed mightily, actually closing out the week slightly positive, and is up since we initiated our positions, which tells us just how the strategy fares in difficult markets.

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.