Edging back into the market
Cabot says buyers still face headwinds
By Peter Brimelow, March 6, 2008
NEW YORK (MarketWatch)—A fierce February has left investors bruised, but stocks are still roughly where they were when it began. And one letter that called this winter’s woes is continuing to edge back into the market.
Cabot Market Letter has historically been bullish, but it broke with its fellow bulls in November. (See Nov. 28, 2007 column). And it declined to be tempted back into the market in January. (See Jan. 10 column). But in early February, Cabot was preparing to turn bullish. (See Feb. 4 column). Now its preparations are almost complete.
Attention has to be paid to Cabot. It has outperformed the stock market over the past 12 months according to the Hulbert Financial Digest, up 32.33% vs. negative 2.63% for the dividend-reinvested Dow Jones Wilshire 5000. That makes it the fifth-ranked letter over the period.
Over the past 5 years, Cabot has achieved a 19.57% annualized gain vs. 13.17% for the total return DJ-Wilshire 5000.
Over the past 10 years, Cabot is up 7.18% annualized vs. 4.85% annualized for the DJW 5000.
Cabot reports that its short- and intermediate-term technical indicators had both turned bullish by late February. Its long-term indicator is still bearish. However, Cabot wrote: “That doesn’t mean that any rally is doomed to failure, but it does tell you that the buyers will face some headwinds in the weeks to come.”
The service reduced its Model Portfolio’s cash position from 69% in late January to a current 50%. It wrote in its monthly letter, dated Feb. 28: “The kings of this new bull market are natural resources, commodities, and the companies that find them, move them and sell them. That means coal, oil, iron ore, steel, natural gas, gold, silver, copper and more.”
Cabot also wrote: “We’d dearly love to get in on the action in coal and iron ore. But not so dearly that we’re willing to buy at the current prices; we think the odds are high for at least a short-term pullback in these sectors.”
Cabot did add two new stocks: Illumina Inc. (ILMN) and Western Digital Corp. (WDC).
Of course, this recommendation promptly ran into March’s opening madness. Cabot has recoiled, but not retreated.
In its hotline last night, Cabot sold Western Digital—strictly speaking, downgraded it to a “hold"—"simply because of the stock’s quick selloff last week.”
Cabot also said: “Continue to hold plenty of cash on the sideline, but you should also hold on to our recommended stocks. The buy signal from last week could prove to be a whipsaw, but right now, neither the bulls nor the bears are truly in control of this market.”
Cabot now has five stocks in its model portfolio. Besides Illumina, there are two other “buys"—Agnico-Eagle Mines Ltd. (AEM) and Transocean Inc. New (RIG).
Besides Western Digital, there are two other “holds” in Cabot’s model portfolio—none of which are counted by the Hulbert Financial Digest’s merciless methodology: First Solar Inc. (FSLR) and Intuitive Surgical Inc. (ISRG).
Commenting on Agnico Eagle Mines, Cabot wrote: “Gold remains the ultimate inflation barometer, and the bull market in that metal is in fine shape. Agnico Eagle Mines, which didn’t do much for us in the three months after our recommendation, is now earning its keep. The firm’s fourth-quarter report missed expectations, but AEM is going to rise and fall because of the price of gold, not because of last quarter’s earnings.” End of Story.
Link to article on MarketWatch.com
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