Sticking with a Defensive Stance

The market opened sharply lower but rebounded nicely as the day wore on, with the Dow closing up 53 points and the Nasdaq rising 39 points.

By the letter of the law, our Cabot Tides turned positive yesterday, as most of the indexes we track were above their 25-day moving average and the moving averages began to turn up. That’s a positive sign, no doubt about it.

However, we’ve also been upfront about the fact that we’d like to see major indexes rise above their intermediate-term highs from earlier this month. The S&P 500 and other indexes kissed those resistance levels on Monday and immediately backed off; the Nasdaq never came close to its own resistance level. Today’s intraday rebound was encouraging, but the major indexes finished just south of those key areas.

More important, our longer-term Cabot Trend Lines remain bearish and our Two-Second Indicator is negative as well.

Given all of the evidence, we’re going to stick with our defensive stance for now, but we’ll also remain flexible—should the indexes push higher from here (producing a convincing Tides buy signal), we will put some money to work, possibly adding two or three new stocks, which would bring our cash down to the 50% to 60% range.

But, until that happens, we advise patience, allowing the buyers and sellers to fight it out while we keep our watch list updated.

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.

Michael Cintolo can be found on Google Plus.

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