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.
While the headline swings in the major indexes haven’t been noteworthy, we are seeing some attention-grabbing action from our indicators.
First, our intermediate-term Cabot Tides are now on the fence—while the widely-watched S&P 500 and Nasdaq are still in decent shape, two indexes we track (S&P 600 SmallCap, and the S&P 400 MidCap) are at or below their 50-day lines, and a third (the NYSE Composite) is just 1% above its 50-day line. This may prove to just be a test of the intermediate-term uptrend, but a couple of bad days could change the outlook.
Moreover, our Two-Second Indicator is starting to speak. Today was the fourth straight day we’ve seen more than 40 new lows on the NYSE, and these readings began just after the Dow (and other popular indexes) reached new-high ground. Coming right after a top, the readings tell us the broad market is quickly degrading.
Of course, all is not lost for the bulls, especially with the intermediate- and longer-term market trends still pointing up, and with few institutional-quality leading stocks having decisively faltered. Ideally, we’re seeing the beginning of a rotation out of defensive, dividend-paying names and into growth stocks—something that would be very positive.
Still, the game plan we laid out on page 1 of last week’s issue was simple—if we saw the market and a bunch of stocks liftoff (preferably on earnings), we’d put some money back to work. While we have seen a couple of earnings gaps (Twitter is on our Watch List; see below), the market is obviously looking more suspect here.
Thus, if you’re heavily invested, you might consider trimming by selling your weakest stock or two. In our situation, the Model Portfolio is already a bit over 40% cash, which we thought was too high a week ago … but today, we’re thinking is about right.
If the buyers return to the market in a hurry, we do have a couple of names we might add, but for the moment we’re holding our cash.
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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