Excerpt from MarketWatch.com:
Muddling through
Commentary: Cabot Market Letter’s Cintolo thinks this too, will pass
By Peter Brimelow, MarketWatch
October 9, 2008
NEW YORK (MarketWatch)—What we need at this point, says a top performing letter editor, “is a hero.” But, lacking that, “we will muddle through.”
It’s not that Cabot Market Letter’s Michael Cintolo thinks the market is about to bottom, like TheDowTheory.com’s Jack Schannep.
Indeed, in his most recent letter, which arrived Wednesday night, Cintolo specifically says that he’s not going to call a bottom and that in the short term, in this election year, “anything can happen.”
Cintolo is savage about the scare tactics used to force through last week’s bailout. He says they created a crisis of confidence so bad that even the fact that oil prices (remember oil prices?) are 18% off their high is being ignored. Hence, his hankering for heroic, calming leadership.
But, regardless, Cintolo thinks this too will pass. He writes:
“In many ways, today’s market reminds us of 1987, when the market crashed 39% in 12 days, bottoming on October 20. The steep and broad decline has stunned investors and decimated confidence. We are in uncharted territory. And there is no optimism that profits lie ahead. Yet they do. In the month following that 1987 bottom, we bought Apple Inc. (AAPL), MCI Communications, St Jude Med Inc. (STJ) and lesser known stocks that became big winners.”
(Warning: Cintolo has said that one bull market’s winners are seldom those of the next.)
I’ve been particularly interested in Cabot since it broke with the top-performers’ bullish consensus nearly a year ago, calling a significant break, or what passed for one in those days.
Cabot has been hurt this year, but not as much as the market. Over the year to date through September, the letter is down 10.8% by Hulbert Financial Digest’s count. But that’s as opposed to a loss of 18.6% for the dividend-reinvested Dow Jones Wilshire 5000.
And Cabot’s longer-term record is strong. Over the past three years, the letter has achieved a 5.81% annualized gain, vs. 0.56% annualized for the total return DJ Wilshire 5000. Over the past 10 years, it made a 14.2% annualized gain, vs. 3.98% annualized for the total return DJ Wilshire 5000.
Cabot’s technique is a combination of fundamental analysis and market timing based on moving averages. Currently, its long-term and medium-term indicators are very bearish (“you should remain in your storm cellar”) and its short-term indicator, based on the number of new daily lows, cautious (“we’ll take it day by day”).
Cabot’s model portfolio right now consists of one stock, Alexion Pharmaceuticals Inc. (ALXN), which Cintolo rates as a “hold.” (“This is just about the only company that sports triple-digit revenue growth and expanding earnings whose stock hasn’t fallen off a cliff.”) But he says he will sell it if it closes with a loss above 20%, his standard practice. Other than this, he is 92% in cash.
Cintolo maintains a “Watch List” of stocks he might buy when the time is right. He writes:
“Remain defensive, but don’t despair. We’ve been amused in the past week to see some well-known market commentators turning bearish after the damage has been done, and then forecasting that the investment landscape will be barren for years to come. We think they’re wrong. We think the odds are very good that some of the stocks on our Watch List will be rated buy in the weeks ahead.”
Among the seven stocks now on the Cabot Watch List are Buffalo Wild Wings Inc. (WLD) and Live Nation Inc. (LYV).
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