Simplified Cabot Market Timer

By Paul Goodwin, Chief Analyst. Cabot China & Emerging Markets Report
From Cabot Wealth Advisory 11/6/08 Sign up for free Cabot Wealth Advisory e-newsletter

The U.S. stock market has been showing a few signs of life recently, which is good.  I hope the period of catastrophic declines we've been going through hasn't hurt your portfolio too badly.

I have been telling the subscribers to the investment advisory I edit, Cabot China & Emerging Markets Report, to be more than 80% in cash for a while now. In fact, I sold the last stock from the Report's portfolio on October 16. Before that, the Report had been cutting back steadily since July. So I'm confident that Cabot China & Emerging Markets Report followers are readers in pretty good shape.

Every analyst of Cabot's growth advisories has had the same advice.

Markets don't stay down forever, and this historic selloff has created a whole raft of bargain stocks. There's just one problem.

How do you know when to get back into the market?

Here's an easy way to tell, one that's based on one of Cabot's powerful set of market timing indicators, the Cabot Tides.

This method will help you figure out when the market's recovery is robust enough to make it worth your while to start investing again. It won't guarantee success for either the market or your individual investments, but it will put the odds in your favor and give you the confidence you need to overcome the aftereffects of this bearish period.

Step One: Get an online chart of the S&P 500 Index. This will be available on most sites that feature finance sections. For Yahoo! Finance, use symbol <GSPC; for StockCharts, use symbol $SPX—although just about any chart facility will do.

Step Two: Set the chart to show two moving averages, the 25-day and the 50-day. Yahoo! uses pull-down menus, while StockCharts keeps its controls below the chart.

To get a new buy signal, you need two things:

First, the Index itself must rise above the lower of the two moving averages.

Second, the line for the moving average must be moving up.

Both of these conditions must be met to produce a new buy signal. When you get a buy signal, you can start putting your money back to work, although you will still need to follow the other rules for growth investing, such as buying on pullbacks, cutting your losses short, averaging up in your winners and stepping into the market gradually.

This indicator—I'll call it the Simplified Cabot Market Timer—isn't as finely tuned as the timing indicators refined by the Cabot Growth Investor since 1970, but it will serve you well if you follow its advice.

More on Cabot Market Timing Indicators

Stock Picks

Tesla Motors

If Tesla ever begins to cut back on development and innovation costs, earnings will soar.


China seems to be raising up its very own version of Amazon in Alibaba (BABA.


Roy Ward uses the PEG ratio to determine if the stock is undervalued or overvalued.

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