Timing the Market Bottom

By Paul Goodwin, Chief Analyst, Cabot China & Emerging Markets Report
From Cabot Wealth Advisory

Sign up for Cabot Wealth Advisory free e-newsletter

Timing the market bottom (or top, for that matter) is a tricky thing. Since we don’t have a crystal ball, we have to do what we can to try to figure out when that market bottom will occur.

If you've ever seen a kid on a grade school playground getting ready to start jumping rope while two friends swing the rope, you've probably noticed that some people just hop right in and start jumping. Others take a little more time. 

These people sway forward and backward in sync with the rope, trying to figure out the exact right moment to jump in.

By a strange coincidence, that's exactly what some investors do when trying to figure out when to get back into the stock market after a rough patch. I'm going to try to give them (and maybe you) some tips about how to do it right.

Intellectually, everyone knows that the right time to get into the market is at the bottom. Stocks are cheap and there are bargains galore.

Unfortunately, figuring out when a bear market is going to bottom is about as easy as knowing when a long-winded speaker is going to quit talking. It can't be done. Speakers can always find something else to say ... and markets can always go lower.

Maybe it's fairer to say that you can't see a market bottom by looking forward through the windshield. It's something that can only be seen in the rear-view mirror.  

That's because, while neat, clean V-shaped recoveries have been know to occur, market bottoms are usually a messy process, with hopeful rallies followed by sickening dips and stocks that look like new leaders losing momentum quickly. 

As the sage Yogi Berra taught us, "It ain't over till it's over."  

But how do you tell if it's over? The Cabot way is to follow a basket of indexes and wait until a majority of them rise above either their 25- or 50-day moving averages and those averages begin to trend up.  

It's a simple idea that uses the power of trailing averages to distinguish a true shift in market direction from the many exciting-yet-fleeting blips that occur during a downtrend. And it's powerful enough to make the Cabot Market Letter--Cabot's flagship publication--one of the most effective market-timing advisories in the newsletter business.  

Market bottoms scare people and make them want to run away from stocks as fast as their legs will carry them. And when the fear is at its chilling peak and the maximum number of people have run away, that's when the market bottoms.  

That, as the craftiest investment veterans will tell you, is the absolute best time to be strolling in the front door of the market and reaching for your checkbook.

While no one can reliably call a market bottom, the Cabot Market Letter can give you a reliable green light to get back into a new bull market while most individual investors are still hiding under the covers and trying to heal up from the beating they took when the bears took over.


More on Stock Market Timing Indicators


Stock Picks

Norwegian Cruise Lines

Norwegian Cruise Lines (NCLH) is one of the “big 3” in the cruise industry. There’s a real growth story here thanks to a steady expansion in the firm’s ship count, along with an acquisition last year that gives it exposure to the high end of the market.

Constellation Brands

This maker of wines (Mondavi, Clos du Bois, Ravenswood), beer (Corona, Modelo and TsingTao) and spirits (Svedka, Black Velvet and Paul Masson) gets 89% of its revenues from the U.S. and 11% from Canada, so the strong dollar isn’t hurting.

Cheetah Mobile

My stock pick this week is a Chinese stock that was featured in the Other Stocks of Interest section of Cabot Growth Investor. (It’s also in the portfolio of Cabot China & Emerging Markets Report).

Cabot Wealth Advisory

A Great Vacation Stock

By Timothy Lutts on July 06, 2015

Having just returned from vacation, I’m thinking of the millions of baby-boomers who are spending more and more money on leisure travel, particularly on cruises, an industry that is dominated by a few big playersRead More >

Three Simple Options Strategies to Hedge Your Portfolio

By Paul Goodwin on July 02, 2015

Markets are used to all kinds of stressful events, and for the past year or so have taken the Greek debt crisis pretty much in stride. Up through last week, what we saw in the market was an unemotional averaging out of all investors’ estimates of the probability of a Greek default and the likely fallout (including Greece’s exit from the Eurozone).Read More >

Three Simple Options Strategies to Hedge Your Portfolio

By Jacob Mintz on July 01, 2015

On Monday, Paul Goodwin discussed the panic that sparked a greater than 2% decline in the markets on Monday. So how do you protect your portfolio from a pit bull and a swarm of bees?Read More >