After a nearly 5% drop in September, investors once again stepped in, bought the dip, and have managed to push the market higher for a fourth straight week.
Stocks added to recent gains this past week, driving the Dow and S&P 500 to fresh highs. The S&P 500 rose 1.3%, the Dow climbed 0.4%, and the Nasdaq added 2.7%. And the bullish ways continued Monday as all of the major indexes piled on to recent gains.
Year-to-date the S&P 500, Dow and Nasdaq are up 22.6%, 17.0% and 20.3%, respectively.
And to put things into an even greater perspective the last three years have seen the S&P 500 up 29% in 2019, 16% in 2020 and over 22% in 2021.
The talking heads would have you believe a variety of different reasons for the prolonged rally, but ultimately it comes down to simple supply and demand. Over the past 18 months daily net inflows are triple what they were prior to the pandemic.
And right now, the firepower used to buy the dips, including FOMO (“fear of missing out”) and/or TINA (“there is no alternative”) seem to be enough ammunition to keep pushing the market higher.
Cabot Profit Booster 199
After a nearly 5% drop in September, investors once again stepped in, bought the dip, and have managed to push the market higher for a fourth straight week.
Stocks added to recent gains this past week, driving the Dow and S&P 500 to fresh highs. The S&P 500 rose 1.3%, the Dow climbed 0.4%, and the Nasdaq added 2.7%. And the bullish ways continued Monday as all of the major indexes piled on to recent gains.
Year-to-date the S&P 500, Dow and Nasdaq are up 22.6%, 17.0% and 20.3%, respectively.
And to put things into an even greater perspective the last three years have seen the S&P 500 up 29% in 2019, 16% in 2020 and over 22% in 2021.
The talking heads would have you believe a variety of different reasons for the prolonged rally, but ultimately it comes down to simple supply and demand. Over the past 18 months daily net inflows are triple what they were prior to the pandemic.
And right now, the firepower used to buy the dips, including FOMO (“fear of missing out”) and/or TINA (“there is no alternative”) seem to be enough ammunition to keep pushing the market higher.
How long the push lasts is anyone’s guess, and it’s simply a fool’s game to try, so I will continue to take a bullish stance until the market tells me different.
This week I’m continuing to diversify my overall portfolio exposure by adding leading semiconductor developer and producer Marvell Technology Group (MRVL).
The Stock – Marvell Technology Group (MRVL)
Why the Strength
Marvell is a leading fabless chip designer, specializing in data processing semiconductors.
The stock is strong today following a series of analyst upgrades after the company’s latest investor day presentation in which management guided for significant revenue and earnings growth. Marvell increased its long-term annual growth rate forecast to between 15% and 20%—one of the highest rates among large-cap chip companies—and also expects higher gross margins and slightly lower operating expenses over the long term.
The company has been on an acquisition spree of late, including two purchases this year: cloud networking company Innovium and semiconductor component maker Inphi. Both acquisitions are expected to allow Marvell to benefit from accelerating cloud adoption and data centers.
On the cloud front, Marvell sees “significant” growth opportunities from cloud-optimized solutions and expects robust Q3 sequential sales growth from strong data center demand (which accounts for roughly 40% of its revenue and its second-biggest business), thanks to a sizable increase in the addressable market for data center switches. Meanwhile, Marvell anticipates an “incremental multi-billion-dollar opportunity” in the connected vehicle market. It also sees auto as its fastest-growing market opportunity and projects auto segment revenue to expand by seven times in fiscal 2022 (ending in January) versus two years prior.
All in all, analysts see this year’s earnings up 57%, with another 34% gain next year, and the top brass’ long-term bullish outlook has big investors thinking more big gains are in store after that. Earnings are likely out in early December.
Technical Analysis
After a choppy rise for most of last year, MRVL ran into strong resistance at 56 in January, leading to a few months of sour action. The rally in May and June brought the stock back to its highs, but the chop factor returned, with shares bobbing and weaving after that, including a shakeout in late September. But since then, the buyers have returned, with a big-volume kickoff near the start of last month and steady action since. Stop—60
The Covered Call Trade
Buy Marvell Technology Group (MRVL) Stock at 70.50, Sell to Open December 70 Strike Calls (exp. 12/17) for $3.60 or a Net Price of 66.90 or less
Static Return: $310 per covered call (4.63%)
Breakeven: 66.90
Covered Call Return (if assigned): $310 per covered call (4.63%)
Please note, the stock and options prices will be moving throughout the day, so these prices are simply an approximation of prices that you should be able to achieve.
However, the important component of this equation is that the stock price paid, minus the premium received via the call sale, equals the Net Price, or 66.90 or less. (In this case 70.50 minus 3.60 = 66.90. Or another example is you could pay 71.50 for the stock and sell the call for 4.60., which also equals 66.90)
For every 100 shares of stock you buy, you can sell 1 call. For every 200 shares of stock you buy, you can sell 2 calls. And so on …
Open Positions
If our stop is hit, I will send an alert giving detailed instructions on how to exit the trade. But don’t get too worried about setting the stop. I will manage that for you.
| Stock Name and Symbol | Price Bought | Current Stock Price | Stop | Option - Price of Call Sold | Current Option Price |
| International Game Technology (IGT) | 28.10 | 32.00 | 22.5 | November 26 -- $3.50 | $6.00 |
| Builders FirstSource (BLDR) | 55.50 | 57.00 | 49.0 | November 55 -- $3.40 | $3.70 |
| Datadog (DDOG) | 157.60 | 163.00 | 135.0 | November 152.5 -- $12.50 | $16.00 |
| Marathon Oil (MRO) | 16.87 | 17.00 | 14.2 | November 16.5 -- $1.01 | $1.00 |
The next Cabot Profit Booster issue will be published on November 9, 2021.
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