What Is the Market Telling You to Do?

This Week’s Stock Market Video

What Is the Market Telling You to Do?

Fortune Cookie

In Case You Missed It

In this week’s Stock Market Video, I describe the state of the market: technically positive, but still range-bound and indecisive. I look at the top performing industry groups in the market today, and where these top sectors ranked 13 weeks ago. Biopharmas are still on top, but the other sectors have changed dramatically. I also give a couple of examples of good names from each group. It’s not a time for grabbing stocks with both hands, but a little buying is a good idea. Click below to watch the video.

First, a quick word about the Cabot Investors Conference, which kicks off its third edition on August 12 here in Salem, Massachusetts. The Conference comes down to this: We all gather at the Hawthorne Hotel on Wednesday evening for a meet-and-greet cocktail reception. We spend all day Thursday digging into investment topics via panel discussions and presentations from Cabot analysts. We tour historic Salem by trolley or boat on Thursday evening. And we spend Friday morning in more programs on investing strategies (including hearing each Cabot analyst’s favorite stock pick of the moment!).

For anyone who wants intensive, practical seminars on every conceivable equity investment style-growth, value, options, emerging markets, income, blue chips and small-caps-the Conference is ideal. Cabot’s analysts (including me) don’t get bogged down in theories and disclaimers. We show you how to make money (and avoid losing money) with concrete tips and recommendations.

Even more valuable, between programs, during meals, even in the Hawthorne Hotel’s bar late Thursday night, you will get a chance to ask the investing questions you’ve been dying to ask someone. I can guarantee that one of Cabot’s analysts will have the answer you’ve been seeking.

Right now, we’re in the Super Early Bird phase of Conference signups, which means you can save a tidy bundle on your registration. We’ll even tell you how to invest your savings at the Conference.

I hope to see you there. Click here to make your reservation. 

I have a few things to say about the way the market’s been acting recently.

The S&P 500 Index made a great run from the middle of October through the end of November. Then, after a dramatic seven-session correction that pulled the Index back to its July levels, it ran out to new highs in an eight-day rush that peaked on December 29.

So, if you just look at the index’s string of new highs (July, October, November, December), it might look like the bull market is still healthy.

Not so much. (Here’s a chart.)

Since the middle of September, the volatility of the S&P has been exceptionally high. And since early December, the Index’s picture of the market looks more like a kid on a pogo stick than any kind of trend at all.

Mike Cintolo uses the word “choppy” to describe this market. I’d say it looks more like what happens to a rattle when baby gets hold of it.

The point isn’t that the market is in the hands of the bears. I think the bulls and the bears are fighting it out on a pretty even basis.

Rather, I’d say that this kind of wrestling match will eventually lead to a more definitive move one way or the other. And you can’t know in advance which way that move will go.

My investing advice in this kind of market is quite succinct: Patience.

The Cabot approach to growth investing is a lot like Chairman Mao’s Rules for guerilla warfare: “The enemy advances, we retreat; the enemy camps, we harass; the enemy tires, we attack; the enemy retreats, we pursue.” The Cabot version would read more like: “The market rallies, we buy; the market corrects, we sell; the market hacks around like a drunken money, we build our watch list and catch up on our reading.

Now, a few of you may be saying, “Paul, you idiot, just a couple of weeks ago you were predicting a new bull market and mouthing off about your fully invested personal portfolio!”

That’s true. But that was the New Year talking. The market has officially beaten the optimism out of me. It’s not that I’m now pessimistic; I’ve just sworn off predicting. I’ve returned to my senses and I’m newly re-committed to the Cabot growth discipline that lets the market tell me what to do.

I think it would be a good idea if you did the same. One final thought: When, as it inevitably will, the market goes back into a bull phase, one way you can be sure to know with confidence that it’s a good time to push some chips back onto the table is by being a regular reader of one of Cabot’s growth advisories, like Cabot Market Letter or Cabot China & Emerging Markets Report. Those advisories will tell you every week exactly what the market’s doing and how you should respond. And the investors who subscribe now, during a period of choppiness, will be first in line to take advantage.

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Here’s this week’s Fortune Cookie. Remember, you can always view all previous Fortune Cookies here and Contrary Opinion buttons by clicking here.

Tim’s Comment: Investing is not about leading, but it is about making decisions, ideally after evaluating all the relevant intelligence. Not all decisions will be correct, but an ability to make them, accept the consequences and move on is invaluable for the serious investor.

Paul’s Comment: The willingness to hit “fire” (or “buy” or “sell”) is just a reflection of how well you understand the market, your stocks and your own rules for investment. If you can’t sell when your sell disciplines say to, or buy when markets are in a bull phase, you probably can’t succeed as a growth investor. (I knew a guy once who responded to stretches of inaction by saying, “Let’s do something, even if it’s wrong.” The market will often charge you just as much for what you don’t do than for the actions you take. Better to be active, as long as you’re following the lead of the market.)

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 1/19/15 – 4 Common Investing Mistakes 

Tim Lutts, Chief Analyst of Cabot Stock of the Month, writes in this issue about the four mistakes that get beginning stock investors in trouble. Tim also gives the sixth in his series of revolutionary stocks. Stock discussed: LinkedIn (LNKD).

Cabot Wealth Advisory 1/20/15 – Step-by-Step Instructions on Stock Investing 

Roy Ward, Cabot’s value investing guru and Chief Analyst of Cabot Benjamin Graham Value Investor, gives a mini-lesson on lifetime retirement planning strategies. Stocks discussed: SPDR S&P Dividend ETF (SDY) and Avigilon (AVO).

Cabot Wealth Advisory 1/22/15 – Safe Sector that’s Benefiting from Low Oil Prices 

Cabot Dividend Investor’s Chief Analyst, Chloe Lutts Jensen lays out the negative effects of collapsing oil prices, including possible defaults in the oil and gas industry. She also points out that the utilities sector is enjoying a surge of interest as its costs decline.

Have a great weekend,

Paul Goodwin
Chief Analyst, Cabot China & Emerging Markets Report
And Editor of Cabot Wealth Advisory


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