Movers & Shakers

 
The pressure on the market continued this week, though we did see a nice two-day bounce following Monday’s semi-climactic selling. Even so, by our measures, the intermediate-term uptrend that started in late-September has been snapped. Thus, we’re advising a cautious stance, holding a good-sized cash position and keeping new buys small.  

Not everything is looking dour. While many Top Ten (i.e., high relative strength) stocks have sagged, many are also holding up well (especially the liquid growth leaders), which is the opposite of what we’ve seen in the past couple of years. And despite the selling we’ve seen this month, most indexes are still within wide trading ranges, so the trend is sideways as much as it’s down.

Also, this past Monday did see some potentially climactic selling; more than 900 stocks on the NYSE and Nasdaq combined hit new lows, a huge figure usually seen near market lows. Moreover, the extreme selling of the first two weeks of December also caused some breadth readings to hit oversold levels (75% of NYSE stocks were below their 200-day lines that day) that often correlate to higher prices down the road.

Given that, the bounce on Tuesday and Wednesday wasn’t surprising, but we’ll need to see more strength before turning more constructive on the market.

One of our biggest convictions right now isn’t a prediction on what the market is going to do, but simply this:
The pressure on the market continued this week, though we did see a nice two-day bounce following Monday’s semi-climactic selling. Even so, by our measures, the intermediate-term uptrend that started in late-September has been snapped. Thus, we’re advising a cautious stance, holding a good-sized cash position and keeping new buys small.  

Not everything is looking dour. While many Top Ten (i.e., high relative strength) stocks have sagged, many are also holding up well (especially the liquid growth leaders), which is the opposite of what we’ve seen in the past couple of years. And despite the selling we’ve seen this month, most indexes are still within wide trading ranges, so the trend is sideways as much as it’s down.

Also, this past Monday did see some potentially climactic selling; more than 900 stocks on the NYSE and Nasdaq combined hit new lows, a huge figure usually seen near market lows. Moreover, the extreme selling of the first two weeks of December also caused some breadth readings to hit oversold levels (75% of NYSE stocks were below their 200-day lines that day) that often correlate to higher prices down the road.

Given that, the bounce on Tuesday and Wednesday wasn’t surprising, but we’ll need to see more strength before turning more constructive on the market.

One of our biggest convictions right now isn’t a prediction on what the market is going to do, but simply this: Until the major indexes break out to new highs (around 2,130 on the S&P 500 and near 5,200 on the Nasdaq), it’s going to be hard for most stocks to enjoy sustained uptrends.  

That doesn’t mean you can’t make a few bucks in some strong stocks, and we actually do see quite a few set-ups, so if the market does get going, there should be lots of leaders to sink our teeth into. But right now, it’s best to play things close to the vest as we wait for the bulls to truly take control.

That doesn’t mean you can’t make a few bucks in some strong stocks, and we actually do see quite a few set-ups, so if the market does get going, there should be lots of leaders to sink our teeth into. But right now, it’s best to play things close to the vest as we wait for the bulls to truly take control.


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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