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In today’s note, we discuss the acceleration—and potential for overcrowding—of the China stock momentum trend, specifically how it relates to our position in Alibaba Group Holding (BABA).

Right now, I see two conflicting stock market indicators (one bearish and one bullish), and how they shake out will tell the market’s near-term future.

Dividend Aristocrats are a good place to find steady, growing companies with plenty of cash on hand. Here are three of the very best, according to Bob Ciura of Sure Dividend.

There is a colossal housing shortage in this country.

A decade of underbuilding in the housing industry following the financial crisis has left the industry unable to meet the needs of the growing population. It is estimated that the demand for homes exceeds the current national supply by a whopping 4.5 million.

The jilted supply/demand dynamic has caused the median U.S. home price to soar a staggering 40% just since the pandemic. In addition, mortgage rates have soared to the highest level in two decades. The prices and mortgage rates are making housing unaffordable for vast numbers of potential buyers. Sellers are unwilling to trade up and get a higher mortgage rate.

There aren’t enough new homes, and existing homes aren’t coming on the market either. Buyers can’t buy and sellers won’t sell. But there is reason to believe the housing problems will get a lot better in the years ahead.

While the situation is likely to improve, the supply/demand imbalance will likely remain for several years. That’s a problem for the housing market and economy to work through. But it’s good news if you’re a homebuilder. New homes should be in high demand for years to come, and sales should increase with the improving conditions.

In this issue, I highlight the premier luxury home builder in the U.S. The stock has the best track record of all large homebuilders, and the company is in an ideal position to benefit from high demand and increasing buying in the years ahead.

The market saw a ton of volatility in July, August and then with a good-sized early pullback in September, but this was the third straight week of quieter action, with most indexes up less than 1% on the week—though, encouragingly, we did see better action among some growth funds and individual stocks.

WHAT TO DO NOW: Continue to lean bullish. The market’s overall position remains in a similar position—far more good than bad, though still a few flies in the ointment—so we continue to look to add exposure, but to do so carefully, as many stocks and indexes are battling with resistance. Tonight, we’re going to fill out our position in Flutter Entertainment (FLUT), adding another half-sized stake (5% of the portfolio). We’re also placing Argenx (ARGX) on Hold given its recent action. Our cash position will now stand near 25%.

The breadth worries that had so many traders on edge finally reared their ugly head and took a bite out of the market as the indexes took a big hit on Wednesday. By week’s end things had improved a touch, but still the S&P 500 fell 2.45%, the Dow lost 2.54%, and the Nasdaq declined by 2.71% last week.

Today, a whopping eight Profit Booster positions will expire. Most are “slam-dunk,” full-profit trades, while others will go down to the wire.

The big takeaway, before we dive in, is we are going to let the situation play itself out, and come Monday/Tuesday of next week we will revisit our profits, as well as how we will manage the remaining positions.

While Wall Street waits for Santa to appear this December, smart money is paying close attention to junk bonds as a sign of what early 2025 could have in store.

Note: Due to the Christmas holiday, there will be no Cabot Small-Cap Confidential update next week. Happy holidays!

In last week’s update I spoke about the potential for a market retreat early in 2025 given that investors are sitting on sizeable paper profits, and selling after December 31 would allow them to postpone capital gains taxes.

My projection may have been off by a week and a half.

First and foremost, all of us here at Cabot wish you a very Merry Christmas and a happy holiday season. Just a heads up that we’ll be publishing our last issue of Growth Investor this year next Thursday (December 26).

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WHAT TO DO NOW: Remain close to shore. Given the huge run, elevated sentiment and some cracks in growth stocks, we pared back fairly aggressively a couple of weeks ago, coming into this week with 37% in cash. And today we’re paring back further as the under-the-hood selling has come to the surface this week—we’ll take the rest of our profit in Cava (CAVA) and cut our loss in ProShares Russell 2000 Fund (UWM), which will leave us with around half in cash. Details below.

First and foremost, this is our last issue of 2024—next Tuesday is one of our two weeks off all year—so we want to wish you and yours a very Merry Christmas, Happy Holidays and a healthy and prosperous New Year.

Also, before we dive into this week’s idea I wanted to address our December expiration cycle trades. Both NCLH and KD stocks finished above their strike prices, which means we walked away from those trades with our full profits.