Stock Market Video
Is That Dead Cat Still Bouncing?
This Week’s Fortune Cookie
In Case You Missed It
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Stock Market Video
In this week’s Stock Market Video, Mike Cintolo talks about the market’s very impressive rebound and the even more impressive action among leading growth stocks—many have already shot to new highs, including a few big, liquid stocks that tell him big investors are buying. That said, Mike still sees more than a few yellow flags out there (the intermediate-term trend remains sideways, lots of divergences), so he’s not all-out bullish. But there are enough stocks acting well—he highlights a few of his favorites, that he believes some new buying is in order.
Is That Dead Cat Still Bouncing?
Markets recently went through one of the worst summer picnics ever, with the major market indexes falling apart from late June through early July as the ants, the mosquitoes and the bulls in the pasture ganged up on hapless investors. And the worst of all was July 8, a day that saw the S&P 500 Index down 1.5%, with fans of individual stocks down three or four times that.
The S&P has been going through an odd phase during the past year or so. That drop to 2,047 on July 8 had the index trading at the same level it occupied in November 2014.
But the really interesting thing to me, as illustrated by the daily S&P chart above, is that, for the past year, just about every rally in the S&P has been followed by a correction that took away at least half of the gain. (The one exception is the Index’s run from 1,862 on October 15 to 2,074 on December 3. The correction to 1,972 on December 16 missed the 50% correction pattern by just four points.)
That October–November rally was the longest of the past 12 months, but it was followed by two months of tedious up-and-down trading that didn’t end until well into February.
Then, from the middle of May through that nasty bottom on July 8, investors were pummeled repeatedly by alarming headlines and upsetting predictions about (possible) global economic devastation. And the upsetting news about the bearish action on the Shanghai Exchange only reinforced investors’ nervousness.
The long-term trend of the stock market is still up. All those dead-cat bounces have added up to an uptrend, although not an easy one to own. But worries about the debt crisis in Greece and looming interest-rate increases from the Fed have had investors on edge for months. And those worries are reflected in the literal “two steps forward and one step back” pattern of the S&P 500.
So, what’s the takeaway from all this?
I can sum it up in two sentences.
First, if you want some control over your investing destiny, don’t buy the market; buy individual stocks. During the period of uncertainty and stress I’ve been writing about, many growth stocks have enjoyed excellent results. If you’ve been trying to reduce your risk by buying a major index, you’re agreeing to take on every worry in the world. Quit it.
Want an example? Just think how you’d feel about the market if you’d had your money in Palo Alto Networks (PANW) during the past year. The chart tells the story.
(Since this time last year, the S&P 500 gained 12.5%, while Palo Alto Networks gained 153%.)
Second: Don’t listen to what people are saying about the market; listen to the market. If you had a way to know, with a high degree of confidence, when markets were in an uptrend and when they were in a downtrend, you’d know a valuable thing. Even when markets are chopping sideways, that information would help you control your market exposure.
And it will come as no surprise to long-time readers that Cabot’s growth disciplines include both a way to find stocks like Palo Alto Networks (Mike Cintolo has owned it since last October) and a way to gauge the health of the market.
This Week’s Fortune Cookie
Here’s this week’s Fortune Cookie. Remember, you can always view all previous Fortune Cookies here and Contrary Opinion buttons here.
“Riches are like muck [manure], which stink in a heap, but spread abroad, make the earth fruitful.” -- Sir Francis Bacon (Popular Attribution)
Tim’s comment: A contemporary reader could easily seize upon this proverb as evidence that our country’s growing “inequality” (a buzzword of the year) is a dangerous macroeconomic trend. But even on the micro level, it’s clear that money does little good sitting in vaults; money is best used when it invests in enterprises that improve our world, whether they provide us with electric power, medicine, sandwiches or videos of cats.
Paul’s comment:
The difficulty with huge piles of money is how difficult they are to spend. The beauty of a thriving middle class is that a large percentage of its money is spread around by being spent. Concentrated wealth can only be invested, which has nowhere near the breadth of positive economic effects. So, building a strong middle class is the healthiest policy around. This proverb, by the way, is from the 16th century, a time when “inequality” was apparently just as much of a problem as it is now.
In Case You Missed It
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 7/13/15 – Will Greece Disappear?
Cabot Stock of the Month’s Chief Analyst, Tim Lutts, writes about his recent trip to the Italian region of Puglia (in the boot heel) and the waves of change that have washed over it through history. He sees Greece as a current country undergoing historic changes, and recommends a different country. Stock discussed HDFC Bank (HDB).
Cabot Wealth Advisory 7/14/15 – Two Low-Volatility, High-Quality Undervalued Stocks
Roy Ward, the value genius behind Cabot Benjamin Graham Value Investor, writes about the Growth at a Reasonable Price screen that can identify strong, undervalued stocks that are stable and growing. Stocks discussed: McKesson (MCK) and Ross Stores (ROST).
Cabot Wealth Advisory 7/16/15 – Three Lessons Learned from the Greece/China Wildness
Cabot’s growth expert Mike Cintolo looks at the takeaway from the recent worrying events in Greece and China. He has some very down-to-earth advice on how the resulting market volatility can help you when things get dicey. Stock discussed: HealthEquity (HQY).
Have a great weekend,
Paul Goodwin
Chief Analyst, Cabot China & Emerging Markets Report
