Hit or Miss

The past few weeks have been about as mixed an environment as we’ve ever seen. Sure, earnings season always separates the haves from the have nots to some extent, but we can’t remember a time when we’ve seen so many potential leaders get nailed (Pandora, Buffalo Wild Wings, Chipotle Mexican Grill, Adeptus Health, Zoës Kitchen, Under Armour, Zillow Group and Norwegian Cruise Lines to name a few) while so many leaders have blasted off and acted well (including most of the stocks in the Model Portfolio and our current Watch List).

That goes along with the divergences seen elsewhere—for example, our Two-Second Indicator remains very iffy, 60%-plus of all stocks are still below their 200-day lines, and small- and mid-cap indexes remain sluggish. In other words, it’s a hit or miss environment.

However, we’re not writing this as a warning of impending doom. Sure, it would be healthier if all investors were rowing in the same direction, and with so many crosscurrents and blowups among individual stocks, being selective and keeping some cash on the sideline makes sense.  

But as we said in last week’s issue, telling you the advance is narrow is more descriptive than predictive. Really, what it’s describing is a stock picker’s environment … which can be very profitable if you’re in the right stocks! That’s our main thought today: Now is the time to focus on the best of the best, especially the liquid leaders that have emerged in recent weeks.

Our second thought concerns the future (a place we try not to examine too closely). After last week’s better-than-expected jobs report, most investors expect the Fed will finally pull the trigger and raise interest rates next month. What will be the effect? Again, we hesitate to predict, but we’re already beginning to see money flow out of the defensive, stodgy, dividend-paying stocks that have thrived over the past few years.  

If that continues, we think there’s a good chance that growth stocks—which, as a whole, haven’t done much since March 2014—could benefit in a big way. After all, money goes where it’s treated best, and growth stocks are in prime position to lead us higher. We’ll be watching.

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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