Warts and All, the Trend Remains Up

Since the market bottom of late September, we’ve written plenty about the yellow flags that are out there: The advance has been narrow and selective, rotation among sectors has been vicious (the bombardment of retail stocks two weeks ago was stunning), and our Two-Second Indicator (an early warning system for potential market tops) is clearly negative, with the number of stocks hitting new lows usually north of 100, even as the Dow Industrials are near new all-time highs.

And we’re glad we wrote about those topics—these conditions (lots of new lows, narrow advance, hard to make much money, etc.) are often seen prior to major declines. This is the main reason we’ve been going slow in the Model Portfolio, buying just a few stocks and picking our spots carefully.

However, we don’t want to overemphasize on the negative. Indicators that involve breadth are secondary; they tell you about the risks in the market environment, but they don’t pinpoint when the sellers might take control … or whether they will take control at all!  Indeed, there’s nothing that says this divergent market can’t broaden out in the weeks ahead if things go well.

That’s why most of our analysis revolves around primary market indicators—specifically, the intermediate- and longer-term trends of the market (both of which remain up), as well as the action of leading growth stocks (not great, but pretty good). Despite all the worries and potholes, these continue to tell us to lean toward the optimistic side, especially if more leaders emerge in the weeks ahead.

As tricky as the environment is, there are opportunities out there if you’re invested in the right stocks (especially the liquid leaders) and get in at advantageous buy points. So that’s our focus: To hold our best performers and identify low-risk entries on other leaders on our watch list.

It’s vital right now to keep an open mind. Could this be a major market top? Yep. Could this be the start of a broadening-out process for this rally? Yep. Could the choppy, sideways action of the past year continue for a few more months? Yep!  With so many possibilities, it doesn’t pay to anticipate—instead, just continue to stay in gear with the evidence. That will put you in the best position no matter what the market throws at you.

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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