This is an excerpt from Cabot Top Ten Trader, which features the best trades to make every week. Designed for experienced investors who want even more great growth stock ideas, this advisory recommends the best 10 stocks each month for short-term investment by aggressive investors.
The market’s action during the past couple of weeks has been very interesting. From a top-down perspective, not much has changed, and that’s the main reason we aren’t changing our stance—the trend of the major indexes is sideways-to-down, the broad market is relatively weak (tons of stocks are hitting new 52-week lows every day!) and few stocks are in the midst of any persistent upmoves.
Because of that, we’re remaining neutral toward the market, i.e., we’re holding a good amount of cash, cutting back on new buying (plus keeping new buys smaller than normal) and keeping plenty of stops in place on any questionable actors.
That said, we’re keeping an open mind because, for the first time in at least three or four months (and possibly 10 or 11 months), we’re starting to see some potential leading stocks show some muster. For instance, indexes like Russell 2000 SmallCap and S&P 400 MidCap have quietly outperformed the bigger-cap indexes since mid-October.
Plus, among individual stocks, we’ve begun to see a few growth-oriented names that had been consolidating for months push to new highs on good volume (that includes a bunch of solid earnings gaps this week), which is a great first step. Now it’s a matter of seeing these stocks hold and, eventually, extend those gains—such action will be a clear sign that big investors are putting money into riskier securities.
Of course, earnings season goes both ways—we’ve seen a fair amount of poor reactions to earnings reports (we have many sells listed below), and some breakdowns for other reasons, too. So we certainly don’t think you should be complacent here and buy five or six stocks; there’s a decent chance the market could roll over and drag down most everything. But we might be seeing a change in character in growth-oriented stocks, something that is usually a good thing.
Thus, keep some powder dry, but also have a shopping list ready to go should the bulls take control.
Michael Cintolo is Vice President of Investments at Cabot Heritage Corporation, and Chief Analyst of Cabot Market Letter and Cabot Top Ten Trader. A growth stock and market timing expert, Mike is a true student of the market and a technical analysis specialist.
Subscriber comments on Cabot Market Letter
Subscriber comments on Cabot Top Ten Trader