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Very Encouraging Market Action


By Michael Cintolo, Editor of Cabot Market Letter and Cabot Top Ten Weekly
From Cabot Market Letter 9/1/10 

The market bolted higher at the opening today and advanced further as the day wore on. When the closing bell rang, the Dow was up 255 points and the Nasdaq had surged 63 points.

Today, to be blunt, was very encouraging. Not only did the indexes score major gains (that happens regularly during downtrends), but volume was solid, and many leading stocks shot ahead on good volume, with a few even scoring new highs. For today, anyhow, it looks like the bulls were flexing their muscles.

However, today was just one day—our trend-following indicators are still negative (most indexes are now back to, or just below, their 50-day moving averages), and the Two-Second Indicator has been giving off warning signs since the market topped in early August.

Thus, we’re encouraged that the market MIGHT be turning the corner here, or if you prefer, starting the process of turning the corner. But we need to see more evidence before we begin a new buying spree.

One thing that continues to favor a bull move at some point is sentiment; today it was reported that fewer than 30% of all newsletters are bullish, the smallest number since … March 2009. Last week, a poll of individual investors also showed the lowest bullish reading since March 2009. That doesn’t mean the market has to bottom here, or that it has to bottom at all. But it does hint that, whenever a true uptrend gets going, it has a good chance of being more powerful and persistent than many investors believe possible.

For now, we advise standing pat; the rest of this week will likely be choppy with light volume because of the upcoming Labor Day holiday. But it’s best to keep an open mind and to keep a close eye on the market. Hold your strong, profitable stocks, but also keep 40% to 50% cash on the sideline.

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