Getting in Sync with the Market

Stock Market Video

Getting in Sync with the Market

Patience Precedes Profits

In Case You Missed It

In this week’s Stock Market Video, Mike Cintolo discusses some reasons why we’re thinking the nascent rally could be the real McCoy, and highlights a few early leaders and a few names that are still on the launching pad. Stocks mentioned include: Lennar (LEN), Ryland (RYL), Amazon.com (AMZN), GNC Holdings (GNC), Cirrus Logic (CRUS) and Mellonox Technologies (MLNX). Click below to watch the video!

Screenshot 7-6-12

Getting in Sync with the Market

Of all the Cabot techniques for growth investing, the one I have the hardest time explaining is our approach to market timing. I’ve worked here for so long that it’s pretty much second nature to me, so I sometimes take it for granted that everyone must understand it. But, for reasons that I’ve had a hard time zeroing in on, many of our subscribers just don’t get it.

And I’ve finally figured out why. 

Cabot’s market timing is tough to understand because mutual fund companies have spent millions of advertising and brochure-writing dollars over the years convincing their investors that market timing is both impossible and positively injurious to your portfolio’s value.

We here at Cabot, on the other hand, have been successfully employing market timing disciplines for decades as part of our growth investment strategies. 

So who’s right? 

Well, as often happens with difficult philosophical questions, it comes down to a matter of definition.

When the big investment companies warn that you can’t time the market, they’re saying that you can’t anticipate what the market will do in the future. And I agree; that’s as true as true can be.

So if you’re investing in an index fund and you’re trying to jump in just in time to participate in a rally—or jump out in time to avoid a big correction—you probably are doomed to failure. Markets love to entice the unwary to try to call a bottom, yet they’re never so low that they can’t go lower. And they’re similarly perverse with fooling people about how long rallies can last. 

The reason Cabot’s market timing indicators actually work is that they have nothing to do with predicting the market’s future. They’re only concerned with accurately describing what markets are doing right now. 

Now you may be saying to yourself, “What’s the big deal about saying what markets are doing now? Anyone can do that.” 

Well, not really. Do you know how many days markets have to go up to constitute a new bull market? How many weeks? Do you know what constitutes a retest of a previous low and what’s a new downturn? Can you distinguish between a correction within a longer uptrend and a full-on downtrend?

The strength of Cabot’s market timing indicators is that they are based on making all the mistakes that investors make in trying to time markets. And if, over a period of over 40 years, you made all those mistakes and gradually eliminated everything that didn’t work, what you would be left with would probably look very much like the Cabot market timing rules.

Our market timing indicators won’t tell you what stocks to buy. Stock selection is an entirely different set of skills.

But even if you have done all the research and found what looks like a perfect stock, you need to know what the market’s doing before you hit the BUY button on your online brokerage account.

If you don’t, it will be like trying to walk up the DOWN escalator. You can do it, but the odds will be so shifted against you that any advantage you might have gotten from your diligent research will be squandered. 

Once you finally tumble to the idea that a growth investor needs a healthy market just as much as a sailboat needs a fair breeze, the importance of real market timing—not that crystal ball reading the future stuff that passes for market timing among the ignorant—becomes as obvious as a petunia in an onion patch. For more, click here.

Patience-Precedes-Profits

Here’s this week’s Contrary Opinion Button. Remember, you can always view all of the buttons by clicking here. 

Patience Precedes Profits

Alliterative and simple. Patience means waiting to buy until a growth stock sets up in a high-potential pattern. Patience means waiting to buy until your value stock gets cheap enough. And patience means holding patiently as your stock climbs, until you get an exit signal.
 
In case you didn’t get a chance to read all the issues of Cabot Wealth Advisory this week and want to catch up on any investing and stock tips you might have missed, there are links below to each issue.

Cabot Wealth Advisory 7/2/12 – Happy Fourth of July

In this issue, Paul laments the decline of personal fireworks and offers an alternative take on the reporting of weddings. Featured stock: XO Group (XOXO).

Cabot Wealth Advisory 7/5/12 – It’s Hardest to Keep Things Simplest

Mike talks about the challenge (and benefits) of keeping your technical analysis of stock charts simple … very simple. Mike uses a simple bar chart with 25- and 50-day moving averages. Featured stock: Coinstar (CSTR).

Have a great weekend,

Paul Goodwin
Editor, Cabot Wealth Advisory

Don’t miss this!

With a lagging U.S. job market and financial unrest in Europe, it’s clear the market’s volatility is about to increase exponentially. For these reasons, the market move we see headed our way in the next 30 days could be the biggest shocker of 2012.

Your free report will show you what you must do now to protect yourself and profit. I guarantee it will be your best financial decision of 2012. 

Click here to learn more. 

Comments