Reprinted from MarketWatch
Best-performing bull bellows bravely
Commentary: Cabot Market Letter refuses to join the rally skeptics
By Peter Brimelow, MarketWatch June 18, 2009
NEW YORK (MarketWatch)—Has the rally rolled over? The split among the best-performing letters is unusually sharp. But one bull is bellowing bravely.
This weak week has certainly bolstered the bears. Confirming their concern in current hotlines were Dow Theory Letter’s Richard Russell, Stealth Stock Daily’s Dennis Slothower, and Stock Market Cycles’ Peter Eliades.
But Cabot Market Letter’s Michael Cintolo came out last night with a typically well-reasoned issue unflinchingly making the case that “the bull market is not over yet.”
Attention ought to be paid to Cabot. Its long-term record is very strong.
Over the past three years, Cabot has achieved a 6% annualized gain by Hulbert Financial Digest count, compared to a negative 8.18% annualized for the dividend-reinvested Wilshire 5000 Total Stock Market Index total return Wilshire 5000.
Over the past five years, the letter has achieved a 3.11% annualized gain, versus a negative 1.26% annualized for the total return Wilshire 5000. Over the past 10 years, the letter has achieved a 3.08% annualized gain, against negative 0.86% annualized for the total return Wilshire.
But Cabot did not escape the Crash of 2008 completely unscathed. Over the past 12 months, the letter is down negative 21.96% — still better than the negative 32.63% of the Wilshire. And over the year to date, Cabot is down negative 5.6%, as opposed to a 4.1% gain for the Wilshire.
Still, that might be turning around. Cabot was strongly bullish in early May, when the post-March rally first began to stumble. (See May 4 column.) That hasn’t been falsified yet — and is very reminiscent of a similarly brave call Cabot made in 2007, when it broke with its fellow bulls to catch the beginning of the stock slide. (See Jan 10, 2008, column.)
Right now Cabot says: “Investors who have a road map they can rely on remain calm. They know that after a powerful three-month run, the market had become overextended and needed a rest, and now they’re watching the behavior of that correction on a daily basis to ensure that it remains a ‘normal’ correction. … Above all, they’re watching their individual stocks very carefully, alert to both breakdowns and buying opportunities.”
The reason for Cabot’s overall bullishness: Its long-, medium- and short-term technical indicators remain positive. The first two are moving-average systems. The short-term measure, which Cabot calls its “Two-Second Indicator,” looks at the number of New York Stock Exchange stocks hitting new lows. Surprisingly, there have been fewer than 10 new lows in the past 24 days.
Cabot concludes: “An amazing show of strength and resilience by the broad market. While leading stocks have certainly taken hits, it’s difficult to conclude that the sellers are truly taking control of the market when so few stocks are hitting new lows.”
Cabot is currently 62.9% invested. Recently, it has a couple of stocks that haven’t conformed to its disciplined system—stocks are sold if they lose more than 15%-20%—and bought a couple of positions.
I won’t reveal all of these because subscribers deserve first crack, but one certainly has enough float not to be sensitive: ProShares Ultra S&P500 ETF (SSO)—a bold, double-leveraged play on the stock market.
Previously bought into Cabot’s model portfolio: Changyou Com Ltd, (CYOU), Green Mountain Coffee Roasters Inc. (GMCR), Jefferies Group Inc. (JEF) and Netease.com Inc. (NTES).