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

Applied Materials

Its size and product diversification help insulate it from economic downturns, and its high quality products protect its market share.

Weibo

This social networking platform can be called the Twitter and Facebook of China.

Parsley Energy

All the characteristics of a big energy winner—if oil prices cooperate.

Cabot Wealth Advisory

Investing in Emerging Markets Stocks: Why and How

By Paul Goodwin on July 22, 2016

Emerging markets stocks can march to their own drummer, and that’s a good thing for your portfolio. One Chinese education stock looks especially good.Read More >

The Best Investment Sites to Research Stocks

By J. Royden Ward on July 21, 2016

In the interest of teaching you how to become a better investor, I have compiled a list of the best investment sites that can help you make the best investment decisions. Read More >

Warning: Bubble in High Dividend Stocks Forming

By Chloe Lutts Jensen on July 19, 2016

High-yielding dividend stocks have been some of the best performing stocks on the market this year, leading to some out-of-whack valuations. Is a bubble forming, or is this the new normal for the top dividend payers?Read More >