MarketWatch Comments on Cabot Market Letter's Performance, Outlook

MarketWatch columnist Peter Brimelow praises Cabot Market Letter for its strong 2010 returns (up 33.42% according to Hulbert versus 12.61% for the dividend-reinvested Wilshire 5000) and market timing calls that helped the Letter gain a spot in the Top Ten Performers of 2010.

Reprinted from MarketWatch

“Buying Panic” bull draws in horns, somewhat

By Peter Brimelow, MarketWatch January 3, 2010

NEW YORK (MarketWatch)—Well, it wasn’t a “buying panic” but stocks did finish 2010 at a two-year high. The top timer that raised the idea is still bullish, but increasingly fears a “substantial correction.”

Cabot Market Letter wondered about a possible “buying panic” in early December. See Dec. 9, 2010 column.

This ended a year that Cabot frankly said in its most recent issue was “surprisingly challenging, lowlighted by a four-and-a half month correction of 15% to 20% in the major indexes during the spring and summer; not only did stocks head south, but they had many false rallies during that time. And that doesn’t even take into account the tricky action of January and February, when the market turned tail for a few weeks.”

Nevertheless, over the past 12 months ended in November, Cabot Market Letter was 33.42% up by Hulbert Financial Digest count vs. 12.61% for the dividend-reinvested Wilshire 5000 Total Stock Market Index. That made it the seventh of our Top Ten performers for 2010. See Dec. 27, 2010 column.

Over the past three years—which include the Crash of 2008—the letter is up an impressive 6.58% annualized vs. negative 4.26% annualized for the total return Wilshire 5000. Over the past five years, the letter is up 8.66% annualized vs. 2.27% annualized for the total return Wilshire.

And over the past ten years, Cabot was up 4.1% annualized vs. 0.89% annualized for the Wilshire.

This is Cabot’s recent take on stocks, as of December 28:

“The market’s main trends, as depicted by both the Cabot Trend Lines [long-term] and the Cabot Tides [intermediate], are positive; in fact, most major indexes hit new highs last week. Also, the number of stocks hitting new lows has shrunk to below 40, so our Two-Second Indicator [short-term] is bullish, too.”

But, Cabot warned:

“Where we do find reason for concern is in the euphoric level of investor sentiment … an important, though inexact, measure of risk. We’re also concerned about the uninspiring action of leaders like Baidu (BIDU) and Chipotle Mexican Grill (CMG), as well as many others that have stalled out in December.”

I’m a long-standing China churl. See Dec. 2, 2010 column. So I was intrigued to see that Cabot went on:

“And peripherally, we’re concerned that the Chinese stock market—which has been growing increasingly unhealthy in recent weeks—has now been hit with an interest rate hike, making us wonder if in the world’s increasingly inter-dependent stock markets, China is now the bellwether.”

Cabot’s conclusion:

“In sum, we remain bullish—because we simply cannot argue with the trends of the market—yet we are aware of the growing possibility of a substantial correction as the New Year gets under way.

Cabot added:

“Continue to make decisions on a stock-by-stock basis.”

Example:

“In the Model Portfolio, we’re selling Aruba Networks Inc. (ARUN) because of weak action, bringing our cash position to 36%.

Link to article on MarketWatch.com

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