Reprinted from MarketWatch:
Woeful Wednesday
Top-performing Cabot letters are pulling in their horns
By Peter Brimelow, MarketWatch July 2, 2008
NEW YORK (MarketWatch)—A woeful Wednesday. And two top-performing bulls are pulling in their horns, at least for now.
Despite Wednesday’s woes, one service that you would think should be not worrying and being happy is the Cabot Market Letter.
This highly successful letter (currently third-highest performer over the past 12 months according to the Hulbert Financial Digest, up 30.21% vs. negative 6.31% for the dividend-reinvested Dow Jones Wilshire 5000) has been historically bullish. But it got presciently bearish last fall.
Now it has turned bearish again, at least short term. And its prescient performance is apparently being repeated. See June 25 column.
Wednesday night, Cabot wrote in its hotline: “Our market-timing indicators are still clearly negative.” It is raising its cash position to some 65%.
Cabot now recommends only one buy, and that cautiously: “We’ll leave Visa Inc. (V) on buy, as the stock continues to resist the market’s downward pull. But remember to buy in just small amounts, and only if you already have plenty of cash on the sideline.”
But notwithstanding this short-term success, Cabot is visibly unhappy. Its monthly issue, published Tuesday, was clearly pining to turn bullish, citing such harbingers as the diminishing number of stocks making new lows since January, the greater strength of the broader indexes, and the depth of depression among advisers.
Even Wednesday night, Cabot concluded with a cheerful chirp: “The one piece of good news is that it’s easiest to spot strength in a weak market, so we’re building a watch list of stocks that can take a leadership role in the next bull market.”
But this cheerfulness is not the case with Cabot’s even more successful stablemate up there in Salem, Mass., the Cabot China & Emerging Market Report. In a matched performance you don’t often see in letter families, CCEMR is currently the top letter over the past 12 months by HFD count, up a stunning 108.7%. See June 15 column.
Nevertheless, CCEMR was thoroughly spooked by Wednesday’s action. It said in its hotline Wednesday night: “The broad market has been shaky for quite a while, but there have been sectors, industries and a few individual stocks that have been resisting the downward tug of the bear ... until today. A few days ago some commentators were remarking that investors were being unusually resilient, given the steady diet of bad news they were being fed. Today the gloves came off and a slew of previously immune market leaders got pummeled.”
CCEMR tries to be brave, but doesn’t quite pull it off: “We all know that this has to happen before the market can bottom. When investors finally lose hope, capitulate and sell out, the market can finally begin to work on putting in a bottom and building a new base. Our Cabot China-Timer [which seems to be a simple moving-average system] is still bearish, so capital preservation is the name of the game.”
CCEMR raised its model portfolio’s cash position to 70%, which, it says “seems appropriate for these abysmal market conditions.”
Like its Salem stablemate, CCEMR has just one remaining buy recommendation: Petroleo Brasileiro SA Petro (PBR).
CCEMR commented Wednesday night: “The stock hasn’t come through this downtrend unscathed, but it’s building a technically credible cup pattern at this point and should come out all right. We’ll keep it on buy.”
Link to article on MarketWatch.com
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