Movers and Shakers

It’s been a very bearish start to the year, and the facts are pretty straightforward at this point: The major trends are currently down, so a defensive stance is appropriate.

From here, we offer no predictions. Many investors want to know if we’ve started a bear market, and yes, it’s possible that we have—bears often begin in earnest five to seven months after the ultimate top, and given that the broad market and most indexes topped between May and July (five to seven months ago), the timing is right.

However, we strongly urge you to avoid predicting or putting labels on the market. There’s no money to be made doing that—staying in gear with the market on a daily and weekly basis is what counts. For all we know, the market builds on today’s jobs-induced gap up and soars a few percent next week … or the meltdown will continue. What counts is the current evidence, which is clearly negative.

If you’ve followed our advice, you’ve been holding a good-sized cash position for the past month or two, and with many stops tripped this week, it’s “automatically” pushed your portfolio into a defensive stance. We’re not saying that means the week has been painless—far from it. But if you’ve been hedging your bets, it’s at least taken the edge off the declines.

Going forward, the keys will be patience and flexibility, as well as staying in touch with the market. We expect the wheat to begin separating from the chaff in the not too distant future, as earnings season brings in buyers for at least a few stocks and sectors. Already, some areas (like solar stocks) are doing a decent job of resisting the damage, and some newer names are, too.  

You’ll want to stay in touch with these stocks as they form launching pads. But until the bulls can prove they’re back in control, it’s best to keep any new buying to a minimum, focusing more on preserving capital (and confidence!).

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.

Michael Cintolo can be found on Google Plus.

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