Search

As an options trader, I’m biased to using options versus buying stock when putting on positions.

Looking for a nice stocking stuffer for your grandchildren? Get them started in dividend reinvestment plans. Years down the road, they’ll thank you for it!

The market continues to slowly slog higher in the dog days of the summer. It’s a time of year when investors are more focused on squeezing more fun out of the last days of the summer than investing. Markets seem to behave the same way they did when investors stopped paying attention. In this case it likely means a higher crawl until Labor Day.
Of course, an outside event can always change things. We’ll see what happens with today’s Fed rate decision. But unless something rocks the boat, markets will probably remain on autopilot for the next month or so.

As an options trader, I’m biased to using options versus buying stock when putting on positions.

Current Market Outlook


Last week was a great one for the major indexes and leading stocks, with many surging higher on big volume to notch new highs, a good sign that big investors are putting money to work in growth stocks. That said, it’s not all peaches and cream out there—hundreds of stocks are actually hitting new 52-week lows (mostly energy and interest rate-sensitive stocks, but others, too), and to this point, only the Nasdaq has reached new high ground; the intermediate-term trend for most indexes remains neutral. Reflecting the terrific action of Top Ten stocks, we’ll nudge our Market Monitor up a notch; if you see a good set-up, go ahead and take it. But we’re still advising holding some cash on the sideline and being selective on the buy side.

This week’s list has a hodgepodge of stocks, many of which haven’t been featured here for a long time. For our Top Pick, we’ll stick with the big-cap growth stock theme that’s working well—Celgene (CELG) just popped out of a four-month base on big volume last week following a major acquisition. It’s buyable around here.

Stock Name	Price	Buy Range	Loss Limit
Intrexon (XON)	0.00	55-57	49-50
Take-Two Interactive (TTWO)	123.32	29.5-31	27.5-28
Progressive Corp. (PGR)	0.00	30-31	27-28
Blackhawk Network (HAWK)	0.00	41-43	38-38.5
Alphabet, Inc. (GOOGL)	0.00	675-700	630-635
Fitbit Inc. (FIT)	0.00	42-46	37-38
Domino’s Pizza (DPZ)	339.47	128-134	117-118
Celgene (CELG)	0.00	130-135	119-121
Barnes & Noble (BKS)	0.00	27.5-29	24-25
Alaska Air Group (ALK)	0.00	72-74	66-67
ACADIA Pharmaceuticals (ACAD)	47.84	47-50	42-43

The major indexes haven’t done much since the market’s opening-day jump this year, but the vast majority of stocks and sectors are in firm uptrends. In fact, probably our biggest takeaway of the past couple of weeks is that the sellers look spent—most shakeouts or downdrafts are met with buying within hours or a couple of days, and so far, any pullbacks have come on far lighter trade than their prior advances. Of course, earnings season is getting underway, and that’s sure to add volatility to the mix, but the evidence is bullish and thus you should continue to hold most of your best performers, while looking to add exposure on normal pullbacks.

This week’s list has a bunch of great-looking charts from a variety of industries; many of them have shown excellent buying volume of late, which bodes well. Our favorite is Transocean (RIG), a powerful turnaround situation that is getting going after a rough couple of years. We’re now seeing institutional investors pile back in.

Stock Name	Price	Buy Range	Loss Limit
Urban Outfitters (URBN)	0.00	40-42	-
Trinity Industries (TRN)	0.00	35-36.5	-
Seagate Technology (STX)	0.00	31-33	-
Transocean Ltd. (RIG)	0.00	51-54	-
NXP Semiconductors (NXPI)	0.00	26-28	-
Nationstar Mortgage (NSM)	0.00	35.5-37.5	-
Goldman Sachs Group, Inc. (GS)	0.00	129-135	-
Facebook, Inc. (FB)	0.00	29.5-31	-
Celgene (CELG)	0.00	92-95	-
Chicago Bridge & Iron (CBI)	0.00	45-47	-

The news today is all about the tariffs, but to this point, most things are simply hacking around in a range, so we’re fine holding resilient titles and ditching those that crack. Our biggest thought beyond the headline news or daily reactions is that, unless you’re hopping in and out of things every couple of days, there’s no real money being made of late, with selling on strength seen and headline news causing big moves up and down most days. To be clear, that’s more descriptive than predictive, but until something changes, we favor keeping new positions on the small side, holding some cash and practicing patience waiting for this ping-pong action to stop. We’re leaving our Market Monitor at a level 6 today.

We will say, however, that this week’s list is encouraging—it’s very growth heavy, and even after today’s pothole, many names are in position to get going if the market allows it. Our Top Pick is in the midst of a solid-looking nine-week rest after a huge comeback in the second half of last year.

The market succumbed today to some bad news from Europe, although some buyers did support shares after the early-morning dip. Net-net, today and last Friday were bad, but the major indexes remain range-bound; amazingly, the Nasdaq is now in the midst of its sixth 4% swing up or down since early June, and yet, has made basically no progress during that time. It’s choppy out there! Thus, we see no reason to change our Market Monitor from its neutral position. As for individual stocks, it, too, is a mixed bag—some big leaders broke down last week, but many are still base-building and a couple actually poked into new-high ground after solid quarterly reports. All in all, a little buying is fine, but do your buying on weakness, keep positions smaller than normal and adhere to your stops.

This week’s list is a hodgepodge of stocks from different industries; most are strong for individual reasons (earnings, etc.). Our top pick is PPG Industries (PPG), which isn’t an exciting company, but it delivered a solid earnings report and announced a merger that kicked the stock higher. We think it could do well if bought on pullbacks.

Stock Name	Price	Buy Range	Loss Limit
A.O. SMITH (AOS)	0.00	49-50.5	-
ASML Holding (ASML)	350.01	52.5-54.5	-
DVA (DVA)	0.00	94-97	-
eBay Inc. (EBAY)	0.00	43-45	-
Medivation (MDVN)	0.00	90-94	-
Mellanox Technologies (MLNX)	92.00	84-90	-
PPG Industries (PPG)	0.00	109-112	-
Skyworks Solutions (SWKS)	0.00	27-28	-
USG Corp. (USG)	0.00	18.5-20	-
WOR (WOR)	0.00	21-22	-

It has felt like a horrible week, but the reality is that, despite both the Nasdaq and the Dow both falling into correction territory, all but two of our stocks have held above their previous lows.

As I mentioned in yesterday’s Weekly Update, I am generally waiting for the stock market’s first pullback, during this recovery from the fourth-quarter 2018 stock market correction, before moving many good stocks from Hold to Buy recommendations. However, today’s news on this stock is so good that the odds of a significant pullback have all but disappeared.

The market and many stocks staged a nice bounce last week, and despite many ups and downs and news-driven moves, they’ve all stopped going down for the past three to four weeks—and that means a few good days could actually produce an intermediate-term green light. Still, as has been the case for weeks, we need to see it before taking any big action: Until proven otherwise, the onus remains on the buyers to show up for more than a day or two, which means keeping plenty of cash on the sideline. As has been the case for a while, our Market Monitor remains at a level 3, though we’ll let you know if that changes going forward.


This week’s list is heavier on commodities than it has been in a while, though there are a few nascent earnings winners in there, too. Our Top Pick fills both bills, as shares are picking up steam after their Q3 report following a 13 month period of no progress.

In today’s note, we discuss the recent earnings reports from Bayer AG (BAYRY), Duluth Holdings (DLTH) and LB Foster (FSTR).

It seemed like the post-Fed action from two weeks ago may have paved the way for another leg up in the leadership, but while that’s not off the table, we’re continuing to see a lot of crosscurrents out there as money sloshes around. What does it mean? Not much yet, as the major evidence remains positive, but it’s best to continue to raise and honor your stops, while for new buying, make sure you’re focusing on names that are generally earlier in their moves. We’ll leave our Market Monitor at a level 8, but more than ever, it really depends where you look.

This week’s list has many names that are either just coming into favor or have tightened up nicely after prior runs. For our Top Pick, we’ll go back to the commodity theme, with a stock that’s toying with new highs despite the fact that natural gas is still at very low levels. We’re OK starting small here and adding if the buying continues.

From time to time when I make a recommendation to execute a buy-write, I get the question “Why not just buy the calls?”



Option action in ON Semiconductor (ONNN) yesterday and today is a perfect example of why, in certain circumstances (such as this one), buy-writes are the better tactical action.

So far, the market has had a fantastic year with the S&P up 16.38% at the halfway point. It’s also been a stellar June as the index has climbed 7.3% this month alone. Now, the market is perched near all-time record highs. In this issue, I highlight a stock that is cheap in an expensive market that has a great chance of moving higher in the quarters ahead. It is the best run American refiner that has been knocked back because of temporary conditions in an environment otherwise ideal for American refiners.

In the December Issue of Cabot Early Opportunities, we continue to lean into the market’s bullish trend. We dig into five modest growth companies with exposure to AI, social media/advertising, footwear, HR software and the exciting world of road paving.

As always, there’s something for everybody!

It’s easy to give economists a hard time. But I do have an unsung hero-economist to tell you about, and if you’ve taken a flight on a major airline in the past 30 years, you’ve reaped the rewards of this man’s work.

Every three to six months, I will revisit some of the important themes and strategies used by Cabot Options Trader since I became the editor.