Just Follow the System

 
One of the challenges for investors of all stripes is that now always seems like the most critical time; everyone wants to know how today’s market action changed the outlook for better or worse. And, of course, we all want to know what’s likely to come next. But the vast majority of the time, a good (or bad) few days in a row doesn’t really affect things very much.

In recent days, for instance, we’ve been asked if our outlook has changed after the market staged a couple of negative reversals by the Nasdaq near its 50-day line; whether Tuesday’s rally definitively tells us the bottom is in; and whether the action of the beaten-down groups (biotechs, financials, transports, industrials) portends anything in particular.

Obviously, we’re following a variety of stocks and sectors every day, and we admit we occasionally try to glean some insight from something that happened today or yesterday. But the longer we study stocks, the more we’re content to simply follow the system—i.e., following the message of our three key market timing indicators and the action of leading stocks (both those we own and the many we’re watching).

Turning your decision-making over to the system simplifies the process, relieves a lot of stress and frees up more time for finding the next big winner. In today’s case, we have a new intermediate-term uptrend (a positive Cabot Tides), and during the past month, we’ve seen some encouraging action from potential leading stocks. But the long-term trend (Cabot Trend Lines) and broad market (Two-Second Indicator) aren’t positive yet, so we’re stepping back into the market slowly.

If we start to see more growth stocks hit new highs (even on Tuesday’s romp higher, we saw only a total of about 100 stocks reach virgin turf), we’ll extend our line, and if the longer-term trend turns positive, we’ll probably floor the accelerator. Conversely, if the rally falters, we’ll tighten some stops and cut back on new buying.

You’re probably saying, “We know all of this—you’ve written about this before.” Well, that’s the point! Now is the time to stay focused on following the system—and if this rally is the real deal, our indicators will point the way.


This is an excerpt from Cabot Growth Investor, where we’ve been picking the best growth stocks since 1970. Cabot’s flagship advisory combines expert stock selection and award-winning market timing. It’s the most complete and most helpful, growth-oriented investing advisory available anywhere.

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.


Michael Cintolo can be found on Google Plus.

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