MarketWatch on Market Letter: Decisive Action, Sustained Success

MarketWatch columnist Peter Brimelow describes Cabot Market Letter editor Mike Cintolo's special bulletin to subscribers when the market nosedived on September 22. "Cabot took decisive action. It sold one of its long-time holdings…and rerated the rest of his portfolio hold." Brimelow wrote that Cintolo's success is sustained, "Over the past five years, Cabot was up an annualized 13.17% vs. 1.28% annualized for the total return Wilshire. Over the past 10 years, the letter was up an annualized 7.56% vs. 3.67% annualized for the total return Wilshire 5000."

Reprinted from MarketWatch:

Bull bitten by bear, regrouping

Commentary: Successful newsletter tries to go long

By Peter Brimelow, MarketWatch September 26, 2011

NEW YORK (MarketWatch)—A successful bull puts a hoof in the water. The bear market bites it off. Bull regroups

The Cabot Market Letter, which combines fundamental analysis of stocks with a disciplined moving-average-based trading system, has a long record of prescient calls. Thus it got uneasy about the bull market in early 2008, and made and stuck with a brave bullish call in early 2009. (See March 7 column.)

Cabot got uneasy again this spring. (See May 19 column.) More recently, it has obviously been itching to get back into stocks. (See Aug. 15 column.)

It’s worked. Over this disastrous year to date, Cabot is down just negative 0.2% through August, by the Hulbert Financial Digest’s count. Over the past 12 months, Cabot gained 30.35% vs. 19.06% for the dividend-reinvested Wilshire 5000 Total Stock Market Index.

Over the past three years, Cabot is up 9.06% annualized vs. 0.88% annualized for the total return Wilshire 5000.

And this success is sustained. Over the past five years, Cabot was up an annualized 13.17% vs. 1.28% annualized for the total return Wilshire. Over the past 10 years, the letter was up an annualized 7.56% vs. 3.67% annualized for the total return Wilshire 5000.

But it’s not easy. This last Wednesday, Cabot published its latest semi-monthly issue, announcing that it was going to put part of its now-substantial cash position into stocks. Reason: its “Cabot Tides” medium-term indicator was showing four of its five component indexes above their 25-day moving averages.

This left Cabot 56% in cash.

But that was before Thunderthigh Thursday. With the Dow Jones Industrial Average down some 2.5%, Cabot put out a “Special Bulletin,” saying “This clearly pushes our Cabot Tides back into the bearish column.”

And Cabot took decisive action. It sold one of its long-time holdings, Baidu Inc. (BIDU). (“A great company and a stock that has been one of the biggest winners of the bull market. [But] for many weeks shares have been looking very tired and sloppy, and today, it collapsed below its long-term moving average on heavy volume.”)

And Cabot regrouped further by rerating the rest of its model portfolio “hold” (which the Hulbert Financial Digest will probably treat as a “sell” anyway):

Green Mountain Coffee Roasters Inc. (GMCR); Inc. (PCLN);
ProShares UltraPro S&P 500 (UPRO); and

Under Armour Inc. (UA

This may seem like a defeat for Cabot. But the fact is that Thursday’s stock market slump was perhaps the one thing that could have gotten Editor Michael Cintolo’s attention. He preaches the importance of a disciplined system—and ignoring transient news events. He writes:

“Going forward, it’s important to remember to take your cues from the market itself, and not from the headlines that are sure to push the market up and down in the days ahead. The goal is to preserve most of your capital today, so that you can make that much more once a new uptrend truly gets underway.”

Cintolo took his cue from Thursday’s market action. That’s what he has always said he would do.

But Cintolo’s instincts, after what he says is four decades in the business, must have been seriously twitching to make him go into the stock market when his short- and long-term indicators were still bearish.

My guess is that he will be trying again soon.

Link to story on MarketWatch:

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