While today was great, our Cabot Tides and the Two-Second Indicator remain negative. Our Cabot Trend Lines remain positive, though that will depend on the S&P 500 and Nasdaq close this week.
On an individual stock basis, the action has been better—not great, but better. Almost every liquid leader took a one- or two-day hit, but most have found support at logical places. We did sell our weakest stock on a special Monday bulletin, but most of our remaining six holdings (and other leading stocks we’re monitoring) are handling themselves well so far.
Overall, we think a cautious stance is appropriate. We’re open to any scenario going forward—another snapback, a prolonged decline, or simply more chopping around within the market’s wide 2015 trading range. But our main though is that, until we see the major indexes and some top sectors bust loose to new highs (not just rally higher for a few days), it’s best to be very selective, holding some top stocks but also holding a good-sized cash position.
Interestingly, we did see some panic selling on Monday; there were a huge 944 stocks on the NYSE and Nasdaq (combined) that hit new lows that day. As you know, we are not big on oversold indicators in and of themselves; oftentimes the selling just keeps intensifying. But readings of this magnitude are rare, so how the market reacts to them during the next week or two could tell us a lot.
In the Model Portfolio, we never became heavily invested during the post-September rally due to all the warts we were seeing in the broad market. Thus, Monday’s sale of LinkedIn brought us up to 45% in cash. We’re going to sit tight tonight, but we do have a couple of other stocks on tight leashes, so much further weakness will have us raising more cash and turning outright defensive.
Conversely, we’re keeping our watch list up to date, and as we wrote above, many of the stocks we’ve been following continue to act normally. Should the bulls hop back on the bandwagon, we’re not opposed to putting a little money to work. But for now, with the evidence questionable at best, we advise staying close to shore.
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Michael Cintolo is Cabot's Vice President of Investments and Chief Analyst of Cabot Growth Investor and Cabot Top Ten Trader. To read customer reviews of Cabot Top Ten Trader, click here. To read reviews of Cabot Growth Investor, click here.