Coming into last week, we expected to see the market weaken; the big-cap indexes were up six weeks in a row and had run right into resistance near the spring and summer highs. Thus, a dip was logical.
But the ferocity of the weakness was a bit abnormal in our book. Our Two-Second Indicator, which has been negative for a couple of weeks (telling us the broad market is iffy at best), weakened further, with the number of new lows north of 100 five days in a row.
As for our intermediate-term Cabot Tides, they remain positive but they were close to the edge earlier this week, with three of the five indexes hovering just above their 50-day moving averages. Positive, but we’re watching carefully.
Even our longer-term Cabot Trend Lines need to be watched closely, as last week’s 3.5% (S&P 500) and 4.2% (Nasdaq) declines dragged both indexes below their 35-week moving averages. Thus, the trends are still up, which is positive, but a bad day or two could upset the apple cart.
Of course, we’ll be watching all of our indicators closely, but to us, the main message is simple: The market environment remains split, selective and challenging, with some stocks doing well and others looking horrid. Our game plan is also simple: Hold onto what’s still in uptrends, but keep stocks that are losing momentum on tight leashes and cut your loss in stocks that decisively break support.
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.