A week later, we still lean toward that view; the indexes have held above the intraday lows of January 20, with some sectors and individual stocks seeing nice lifts. And many broad measures continue to show a very “oversold” market (coming into today, about 83% of all stocks are still below their 200-day moving averages), which should allow for further upside testing.
That said, every day that goes by with the indexes still just a couple of percent above the January 20 low, we become more suspicious—usually after such a deep selloff, you get a few days of strong upside, a clear sign the selling pressures were exhausted short-term. So far that hasn’t happened, and it’s something to watch.
All that said, we continue to write about the short term because (a) we know many of you are swing-type traders and might try to make a few bucks on any multi-week rally, and (b) some of you are still holding some dogs and want to know if it’s best to hold some shares in hopes of selling them at higher prices. For the moment, then, we still think the odds favor some short-term upside testing.
However, as we often write, our real focus is on the intermediate- to long-term, as that’s where the big money is—in the big swing (big position) in a new leader just as a sustained bull phase is getting underway. That day is coming, and when it does, it will make all of the maddening, choppy action of 2015 and the defensive posture so far in 2016 worth it.
But right now, the trends remain clearly down. We’re (and you should be) open to anything—from January 20 being THE low of a six-month correction (starting last July), and leading to a big bull run … to January 20 not being a low at all, with the market collapsing below it next week. The key isn’t predicting but just staying in gear with the trends, which today tell us to hold lots of cash, practice patience and keep all new buying small.
The good news is that earnings season (and to a lesser extent, the recent market rebound) has allowed some stocks to separate from the pack. We expect to see more of those potential leaders in future Top Ten issues, and some names below appear to be in pole position to lead the market higher once the bears finish up their work.
This is an excerpt from Cabot Top Ten Trader, which features the best trades to make every week. Designed for experienced investors who want even more great growth stock ideas, this advisory recommends the best 10 stocks each month for short-term investment by aggressive growth investors.
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.