The market pulled back today, with biotech stocks causing many growth stocks to sink. At day’s end, the Dow was down 49 points while the Nasdaq lost 41 points.
Not much has changed since last week’s issue—the intermediate-term trend (Cabot Tides) is still up and the broad market remains in decent health (Two-Second Indicator). On the flip side, though, the longer-term trend (Cabot Trend Lines) is still negative and growth stocks remain lackluster, with nearly any stock approaching new high ground meeting with selling pressures.
Overall, the market has handled itself well since the Tides turned positive on October 7; another 2% or 3% drop would put the Tides buy signal at risk, but so far, the action has been normal.
Individual stocks, on the other hand, have been a different story. Just about any stock that’s approached new high ground has been met with selling, and we’re seeing more breakdowns than breakouts among growth stocks.
All of that said, there remain lots of good-looking set-ups, so our thought is that the rubber is likely to meet the road during the next three weeks as many resilient stocks report earnings. If most of them react negatively (like we’ve seen with Netflix and Chipotle Mexican Grill during the past few trading days), that would be a sign to continue holding plenty of cash and be very selective on the buy side. However, if we see a bunch of stocks lift off (whether on earnings or not), that would be the signal to lean on the accelerator.
For now, there’s enough evidence to come off the sideline a bit, but we need further confirmation before putting a bunch of money to work.