Going into last week we knew it had the potential to be a wild five-day stretch, and the market didn’t disappoint as the indexes swung violently, and sector rotation was intense. By week’s end the S&P 500 had fallen 1.55%, the Dow had rallied 0.5%, and the Nasdaq had lost 3.8%.

Infrastructure has been a hot topic for the last couple of years given passage of a bipartisan bill to finally spruce up the U.S. and try and address climate change.

This month we’re jumping into a pure-play infrastructure company that owns railroads and deep-water ports supporting crude oil and clean fuel shipments, as well as a modern power plant that’s getting tons of calls from AI data centers.

One thing – the company reports quarterly results after the bell today!

Two years after the yield curve inverted, there’s still no U.S. recession in sight. As a result, financials – beaten to a pulp during the double whammy of the 2022 bear market and the March 2023 bank collapse – have become the fastest-growing non-tech sector of the market. It’s also one of the most undervalued. So in this month’s issue, we add a very recognizable big bank that does a little bit of everything – and seems to be everywhere. It’s growing at a healthy clip and yet is cheaper than even the average financial at the moment.

Details inside.

Explorer stocks gained ground this week as market sentiment improved along with the odds of a Fed rate cut this fall.

I’ve been encouraging you to lighten up on some of the Magnificent Seven stocks over the last month or so. In just the last two weeks, these stocks have lost over $1.6 trillion in market value as market enthusiasm has waned and insiders have sold some stock.

What’s behind this trend?

Here are three possible reasons why big tech is facing a tough market.

Cannabis is a highly politicized sector because it is extensively regulated.

The political news has been very good for cannabis. But cannabis investors have been slow to recognize this.

A late-July Fox News poll showed that Vice President Kamila Harris has caught up to and surpassed Donald Trump in five key swing states.

Cannabis stocks should have advanced on the news. Not only is Harris a better cannabis advocate than President Joe Biden, she’d obviously be more favorable to the sector than Trump.

As I mentioned in my first installment of the Cabot Turnaround Letter, the most valuable lesson I have learned in my professional career as a price forecaster is that the rate of change – of just about any metric – tells us everything we need to know about the immediate future. When the rate of change accelerates, it tends to continue accelerating. When it decelerates, it tends to continue decelerating. And the resulting push and pull is a large part of what comprises the business cycle.

Going into last week we knew it had the potential to be a wild five-day stretch, and the market didn’t disappoint as the indexes swung violently, and sector rotation was intense. By week’s end, the S&P 500 had fallen 1.55%, the Dow had rallied 0.5%, and the Nasdaq had lost 3.8%.

The top-down evidence remains decent, with the broad market holding its gains and testing new recovery highs. The issue, though, is the formerly strong tech stocks that included a ton of the market’s liquid leadership—frankly, many of these names have decisively cracked intermediate-term support and look vulnerable to further selling. As we’ve written a few times now, there are still a decent number of setups out there, but for now, we think it’s better to play things a bit cautiously: We’re leaving our Market Monitor at a level 6.

This week’s list has some early earnings winners and includes some ideas outside of traditional growth. Our Top Pick is another real estate play that appears to be lifting out of a longer-term consolidation.

A Midsummer Night’s Scream? That’s what the second half of July has felt like, with stocks (especially tech stocks) plunging and volatility exploding. Now comes another week of Fed speak and massive earnings reports, so don’t expect the choppy waters to settle just yet. But it’s important to remember that it’s still a bull market, and for a variety of reasons, I think the selling will be short-lived. So, today we’re taking another big swing by adding a recent IPO recommended by Mike Cintolo. If you’ve gone to Europe in the last two to three years, it’s possible you’re quite familiar with this company.

Details inside.

The top-down evidence remains mostly positive out there, but growth stocks have been hit very hard--taking things on a stock-by-stock basis has us with more than 50% in cash and, given the breakdowns out there, we’re holding that cash tonight. That said, we’re remaining flexible, too, as the major indexes aren’t in bad shape, the broad market’s resurgence has held so far and we’re heading into the meat of earnings season; given it all, we still think some fresh breakouts could occur if things go well. Thus, for now, we’re cautious, but we’re keeping our eyes open for opportunities.

The S&P spent most of the first half of July setting new highs. But that changed last week. The technology sector sold off on news of new AI chip export restrictions to China. The S&P fell about 2% for the week, giving up most of the gains for July. It may be a blip. It probably is. But the market is high, and stocks showed vulnerability to bad headlines.

A flatter or down market going forward makes income more valuable. The cash register continues to ring regardless of short-term market gyrations. At the same time, many income stocks are still cheap, and interest rates are likely to trend lower from here.

Some of the very best income stocks are in the energy sector. After recent price shocks and other problems in the energy sector, investors are coming around to realizing energy is a strong business that isn’t going anywhere for a long time.

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 biggest natural gas exporters.

Before we get into today’s covered call idea, coming out of July expiration we have a couple positions that we need to address. Let’s dive in …

Pinterest (PINS), Sweetgreen (SG), Howmet Aerospace (HWM) and Hims & Hers (HIMS) all closed below their strike prices on Friday, which means the calls we sold expired worthless, leaving us with our stock positions today. Let’s exit those stock positions ahead of earnings season.

WHAT TO DO NOW: Remain bullish, but don’t be surprised to see some uneasy trading. Yesterday’s market selloff was overdue, but it did nothing to change any intermediate-term evidence with the market or leading stocks. Near term, it’s probably more of a coin flip as to what happens, so we are picking our spots. In the Model Portfolio, we could have some more new buys soon but tonight we’ll hold off. We will, however, switch DraftKings (DKNG) to a Hold rating. Our cash position will remain around 26%.

First off, just a little housekeeping. I’ll be taking time next week to spend with my family, parents, siblings and new niece in Vermont. Much of our production staff will also be taking some time off, so there won’t be a Weekly Update next Thursday. If there is any pressing news I’ll address it via Special Bulletin.

I hope you have a Happy Holiday season!

Let the good times roll!

A good market just got better. A petering rally has been reinvigorated. And the good times may continue to roll through January.

This might be the first time anyone has described singer-songwriter Katy Perry as a sage observer of the stock market. Her song, “Hot and Cold” opens with the lyrics, “You change your mind / like a girl changes clothes.”

This perfectly captures the changes in sentiment in the stock market over the past two months. Going into October, the market was fully locked into the view that elevated inflation would endure, that 10-year Treasury yields were headed above 5% and that there was no hope for small-cap stocks or any group of stocks other than the Magnificent Seven mega-cap tech stocks. Dark days and a hard landing were undoubtedly ahead.

There were no earnings reports or ratings changes this week.

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Small caps are having a very nice week as a lot of rate-sensitive areas of the market zoom higher following the Fed’s meeting and Jerome Powell’s press conference yesterday.

I’ve been saying I think small caps are very attractive lately, so the directional move here isn’t a surprise, though the pace of this week’s gains is rather eye opening. The S&P 600 Small Cap index is up about 7% over the last two days through midday Thursday!

Welcome news: The Fed holds interest rates steady in a sign tightening has peaked and that rates cuts may be coming in 2024. Big positive for stocks.

One of the Explorer’s themes is the exciting and potentially profitable sector of medicine and life sciences. A success story is Novo Nordisk (NVO), which is up about 45% this year. The Denmark-based company has been the talk of the pharma and medical world and even Hollywood with stars trying the firm’s diabetes and weight-loss medicines, Ozempic and Wegovy.

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There are three big developments in the cannabis space to report.

* A buyout of one of our portfolio names, which nets us 105% gains in four months.

* A confirmation that the Biden administration is serious about some major cannabis reform, which would be a huge catalyst for the group.

* A buyable selloff. Cannabis stocks sold off sharply Tuesday probably based on false fears that rescheduling won’t happen. I think that’s wrong, and the weakness is a buy.

When a band interviews a possible new hire, a common question is, “Who are your influences?” No musician was raised in a vacuum – everyone gets their musical foundations and inspirations from someone else. The Rolling Stones, for example, were heavily influenced by the Chicago blues and R&B scene including Muddy Waters and Bo Diddley. Learning someone’s influences helps the interviewer understand how a musician got to where they are and perhaps where they are headed in terms of their musical style, and provides some insight into what motivates the musician’s passion.

Our position in TTE is up 72.6% since we introduced it back on June 30, 2023. By comparison, the stock is up only 15.2% over the same time frame. With our short calls currently in the money and October 20 expiration only a few days away, I want to buy back our October 20, 65 calls and immediately sell more calls going out to the November expiration cycle.

Alphatec (ATEC) Releases Better Than Expected Preliminary Q3 Results

WHAT TO DO NOW: In yesterday’s update we wrote that the market still had a lot to prove, and indeed, the market is down further today despite a dip in interest rates—and more important to us is that some of the resilient names are getting hit with the market. One of those is Uber (UBER), which is cracking support on no news. We’re not craving more cash, but we’ll respect the action and sell one-third of our stake in Uber (UBER) this afternoon and see how it goes from here. Our cash position will now be in the upper 60% range.

Today I want to buy back our PFE October calls and immediately sell more call premium.

I will be exiting the JP Morgan (JPM) trade today. I will discuss the trade in greater detail in our upcoming weekly issue.

Okay, everyone, earnings season is finally upon us. I suspect we are in for an interesting earnings season, and to get us started, I will be holding a subscriber-only webinar tomorrow at 12 p.m. ET. Click here to sign-up. No worries if you can’t make it, we archive everything here at Cabot. You can find all the archived recordings here.

We have numerous positions to roll prior to the October 20, 2023. I’m going to start today with GOOGL an AMGN. I’ll be sending out several alerts over the coming days. Stay tuned!

After being tested on the upside and downside over the past month, we finally have an opportunity to close our October 20, 2023 iron condor in IWM for a nice profit. For those of you that wish to hold on for greater profits, please make sure you are fully aware of the risks.

With the SPDR S&P 500 ETF (SPY) trading for 429.69, I want to place a short-term bull put going out 42 days. As always, my intent is to take off the trade well before the November 17, 2023, expiration date. I’ll discuss the trade in greater detail in our upcoming weekly issue.

The broad market was taken down a notch yesterday, supposedly because job openings increased in August. I’m not buying it.

We’ll get average hourly earnings for September on Friday, which will probably show wage inflation continues to ease and the labor market isn’t as tight as yesterday’s market reaction implies.

WHAT TO DO NOW: The market’s action of late is encouraging for sure, but there’s still more work to do with our Cabot Tides and growth funds. Today we’re going to sell our small remaining position in DoubleVerify (DV) and hold the cash—with an eye toward redeploying the funds in the near future should the market and individual stocks continue to firm up. Our cash level will now be around 45%.

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.