We don’t see the recent strength from the beaten-down groups as a bad thing. Far from it! At the end of the day, if the market is going to enter an uptrend, we’re going to have to see these groups at least stabilize, if not rally back somewhat. So, simply, up is good.
Now, with all that said, the rally of the past few days hasn’t changed our overall view—the intermediate-term trend is down (or, if you prefer, sideways-to-down), and few stocks are making much progress on the upside. The Nasdaq remains the strongest index, which is usually a positive, but we need to see more sustained strength to get a buy signal.
Thus, we advise continued caution—some small buys here or there are fine, as is holding your strong performers. But you should have a good-sized cash position and keep your laggards on tight leashes.
Should we see most major indexes rise back above their 50-day lines and see some stocks break out powerfully to new highs, we’ll become more aggressive. And if we see a move to new highs in the indexes, we’ll shout from the rooftops! But for now, there’s still not many stocks running away on the upside, so hold some top performers and practice patience until the bulls take control.
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.