This is an excerpt from Cabot Market Letter, where we’ve been picking the best growth stocks since 1970. Cabot’s flagship advisory combines expert stock selection and award-winning market timing. This is the most complete, and most helpful, growth-oriented investing advisory available at any price.
“Their” in the title above refers to growth stocks, which last year put on a fantastic show. Whether it was new institutional-quality leaders like Facebook, Celgene or (early in the year) LinkedIn, vibrant glamour stocks like Tesla Motors or new emerging market winners like Qihoo 360, last year was a time when uptrends persisted and growth stocks thrived.
This year, so far, hasn’t been the same. We’ve seen three distinct growth stock rallies in 2014: The first two or three weeks in January, then three to four weeks in February, and then from the mid-May market low to about mid-June when most growth stocks started losing momentum. Translation: Growth stock rallies this year have lasted just weeks, if that, making it tough for anyone but the nimblest traders.
But we’re not writing this to shed a tear over the first six and a half months of 2014, because now we’re beginning to see something different. While growth stocks petered out a few weeks ago and took some lumps in the two weeks after Independence Day, few of them actually broke down. And neither did the market! What we see now is our three key market-timing indicators all still positive, and many growth stocks set-up in multi-month launching pads.
Which way will these high-potential stocks go from here? We’d like to think up—after all, sentiment toward our favored names has soured for a few months, while the market’s major trends remain positive. But predictions are rarely worth the paper they’re printed on when it comes to stocks; instead, it’s best to formulate a plan so you know what to do no matter what comes your way.
So here’s the plan today: If the sharp, news-driven selling pressures of the past two weeks continue, we’ll build up cash by getting tripped out of some holdings that we have tight mental stops on. However, if the many launching pads that have been forming lead to some powerful, earnings-induced breakouts (we’ve seen one this week), we’ll be putting some money to work, thinking that a sustained growth stock run may (finally) be underway.
During uncertain times, many investors tend to gravitate toward bold predictions. Yet better results come instead from staying flexible and going with the evidence—we see some encouraging signs out there, but now we want to see growth stocks charge ahead.
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.
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