As it has so many times this year, the market has been rebounding nicely following a multi-week correction, the most recent one from the start of November through the first week of December (nearly 6% from high to low for the S&P 500 and Nasdaq). It's encouraging action, but so far, it hasn't been enough to flip our Cabot Tides back to positive--three of the five indexes we track are still below their 50-day lines.
The action of individual stocks is also encouraging, but not yet decisive. Many resilient growth stocks have re-approached (and even surged above) their prior highs during the past few days. And it's good to see some of the worst sectors (energy, etc.) catch a bid during the past two weeks, helping our Two-Second Indicator improve.
As you can tell from our words, we're encouraged ... but there hasn't been enough evidence to put more money to work. Leading growth stocks are acting well, and we did see a couple reach new highs yesterday, but it takes more than just a couple to pull the market higher. And, of course, the major indexes are still buried below tough resistance (about 2,130 on the S&P and 5,200 on the Nasdaq) that has contained them for months.
The bottom line as the calendar flips is we continue to think our current position (about 45% in cash and six stocks in the Model Portfolio) is about right. But we're ready to go either way: A big breakdown in the market would likely take us out of one or two of our holdings, moving us to a defensive posture, while a decisive rally to new highs would prompt us to jump on two or three emerging leaders (and possibly average up on one of our current holdings).
As always, we'll let you know which way to go, but right now, your best move is to hold onto some of our resilient recommendations, while also remaining patient as we wait for the market to show its hand.
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.