In the short-term, we wouldn’t be surprised if the market pulled back as April gets underway. Earnings season is coming up, remember, which can often cause some jitters. And while overall sentiment is hardly bullish, there is definitely a relative lack of things to worry about these days … something that often precedes some weakness.
That said, we’ve grown incrementally more bullish in recent days for three reasons. First, the broad market continues to impress—the number of stocks hitting new lows has declined to extremely low levels for the past four weeks. Coming after many months of intense pressure, it’s a good sign that the storm is over.
Second, the longer-term trend is now neutral. If the S&P 500 can close this week and next week above 2,000 or so, and the Nasdaq can close both weeks above 4,815 or so, the major trend will turn up.
And third, we’ve seen more encouraging action among growth stocks. It’s certainly not excellent action (the number of new highs remains tame on the Nasdaq), but it’s improving.
For these reasons, we’ll probably bump up our Market Monitor another notch on Monday; the way we run our portfolio, something in the 65% to 70% invested range makes sense at this point.
As for buying, right now you should do so on a stock-by-stock basis; if something is breaking out of a multi-week base on big volume, by all means, take a swing at it. And if a strong stock pulls back for a week or two near some support, that’s also fine.
But be careful not to get too excited here and buy stocks that are extended to the upside and have been running higher for a few weeks, especially if they have earnings reports coming up soon.
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.