Navigating the Traffic
Have a Plan ... and Follow the Plan
Two Leading Stocks and One ETF to Consider
I just returned from a week in Orlando, Florida with the family and the in-laws, and it was a blast. The weather was great, the golf was great (for the first seven or eight holes ... ahem), we had a small pool at the house, a bigger pool (including a lazy river, which is one of the best inventions of all time in my opinion) at a nearby clubhouse, and ate and drank like kings and queens.
And my four-year old daughter had the time of her life at DisneyWorld (we visited for one full day), where she met, hugged, talked with and got signatures from five-count 'em, five!-princesses. That was pretty sweet.
However, there's one downside to the Orlando area, and that's the traffic. It wasn't an issue within our complex, which was probably a few square miles; it's a newer area that is still being developed. But outside the complex, even on the highways (I-4), it can ... be ... brutal. And roads going past DisneyWorld were particularly awful, despite being three-lane highways.
Well, after getting caught in a few snarls early in the week, my wife and I and another couple made a plan to go to a nice restaurant down I-4 about 25 miles. Although we were hopeful the straight shot would work, we looked up an alternative route, and we knew the phone number to call to push back our reservations if necessary. And we left a bit early just in case.
Sure enough, we hit bumper-to-bumper traffic as we approached Disney, so we got off at the next exit, hopped on a side road and, after getting stuck at a light for a few minutes, cruised into the restaurant, where I feasted on a Manhattan and snapper with a spicy sauce.
At this point, you may be hitting yourselves on the head, wondering why you just spent a few minutes reading about my driving adventures. But I do have a point, and it's this: we had a logical plan, and we followed it. That's nothing amazing, right? You probably do the same thing (consciously or not) a few times every week.
But when it comes to stocks, you'd be shocked at how few investors-even professionals-follow any sort of plan. Instead, they buy when they feel like it or are excited about a stock's move or story. They don't use loss limits. And they have no idea what will cause them to sell.
Even if they do have a plan, they don't follow it-they'll find a reason not to sell or not to buy, essentially going along with their emotions.
Now, I'm not saying that to be a successful investor you need to have a black-box system that tells you exactly what, where, and when to buy and sell. You don't have to be a robot; that's not fun and besides, if you've been at this a while, your instincts are often helpful.
But there's a difference between using a little judgment and being flexible as the market evidence changes ... and having no plan at all, simply hoping every day that your stocks go higher. If you invest simply by your emotions, you're not going to do well in the market.
Thus, the message is simple: In life, you plan lots of things like vacations, how to research a big purchase (car, home, etc.) or, like me in Florida, a trip to the restaurant. So there's no reason you shouldn't have a plan in place when you put your hard-earned money at risk in the market!
Having a plan comes in handy when the market gets rocky, whether it's a big, prolonged decline, or a short, sharp pullback, like we've seen during the past week and a half.
At this point, my market timing system (or plan, if you will) is still positive ... but only by a hair. And while many individual stocks many have taken on water, I can't say I've seen many decisive breakdowns, either. Thus, for now, I'm still leaning bullish-not pedal-to-the-metal bullish, but about 70% invested and holding stocks that remain above support.
As always, when the market gets rough, I look for growth stocks holding up well and, ideally, trading tightly, which is a strong sign that big investors are holding firm. On that note, I have two ideas for your watch list (or possibly for small new buys if you're so inclined).
My first idea is stocks in the still-strong biotech sector, which offers a mix of solid growth, surety of that growth (sales aren't going to dip much if the economy slows, etc.), big profit margins and years of solid earnings estimates.
The two liquid leaders in the group are Biogen (BIIB) and Celgene (CELG). I like Celgene from a fundamental perspective, as it has bigger earnings estimates and management is on record looking for huge growth through 2020. But Biogen is great, too, and the stock is actually a bit stronger than CELG right now.
My other idea isn't a stock, but an entire sector-the solar stocks, which topped in March 2014, had a big shakeout in October of last year, and then bottomed out for three-plus months. The Guggenheim Solar ETF (TAN) has come to life since late-January, rallying to resistance at 46 last week before falling back with the market.
Of course, if the market truly rolls over, all bets are off, but these names look poised to do very well should this pullback be just that-- a pullback-- within the advance that kicked off in February.
Chief Analyst of Cabot Market Letter and Cabot Top Ten Trader
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