Market Weakness Not Surprising
By Michael Cintolo, Vice President of Investments and Editor of Cabot Market Letter and Cabot Top Ten Report
From Cabot Market Letter 11/20/09
Not surprisingly, the market and most leading stocks have begun to pull back after notching good gains during the past couple of weeks. As we write, stocks are about flat on the week after posting earlier gains.
Why is the weakness not surprising? First, stocks have moved straight up, so a rest was due. But second, as we’ve been writing in recent Reports, there have been a few dents in the market’s armor (low volume, divergences among indexes, less leadership, etc.), so it was clear the market’s character was changing to some degree.
All told, we continue to “lean bullish,” as most leading stocks are in firm uptrends, and most major indexes are hovering right around their uptrending 50-day moving averages. But the days of throwing a dart and making money (as was often the case during the July–September period) are probably in the past.
That means being more discerning when it comes to the buying and handling of your stocks--buy on weakness (doing a little buying now, after a couple of down days, seems reasonable), consider smaller positions if a stock is extended to the upside, take some partial (or even total) profits and/or be more aggressive when moving up your stops.
Again, you should remain bullish, and you don’t want to sell out of your strong performers wholesale. But until the bulls show some real power, your portfolio’s likely going to need a little more attention in this environment.
One quick note: When looking for stocks to buy, it’s generally best to look for those that decisively hit new peaks this month; it’s a quick-and-dirty way of finding stocks that are still in favor. You shouldn’t totally ignore those that didn’t, but the stocks that reached new highs have shown more accumulation, which should lend itself to better performance assuming the market cooperates.
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