Stock Market Video
Beach Weather in the Market?
This Week’s Fortune Cookie
In Case You Missed It
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Stock Market Video
In this week’s video, Mike Cintolo discusses the mixed market, where growth stocks continue to act well on balance, but many areas of the broad market look awful and the major indexes chop sideways. Overall, Mike’s still leaning bullish, and he talks about having a plan to deal with your current stocks and focusing on the best-of-the-best set-ups when doing new buying.
Beach Weather in the Market?
It’s the beginning of August, high summer in New England, and a bit of summer fatigue is setting in.
Summer in New England is short, so we try to pack half a year’s worth of cookouts, beach days, hikes, kayaking, sight-seeing and other outside recreation into three months. It’s fun, but the pace can be a bit frantic, especially as the season enters its third act. Frankly, all I want to do now is lie on a beach somewhere and read a book.
That’s not going to happen, of course. Cabot is in high gear with preparations for the third Cabot Investors Conference that will kick off in Salem on August 12. And away from work, there’s the lawn, the garden, the hedges and the rest of the old homestead to look after. And the rounds of socializing won’t slow down until school starts up again and New England returns to normal. It’s all enjoyable, but it can get a little exhausting.
But I’m also just a bit exhausted by what the markets are doing right now.
You may think that that’s a heck of an admission, coming as it does from someone who makes his living by giving advice about what to do in the stock market. But it’s the absolute truth. And it’s easy to explain why.
Here’s a chart showing what the S&P 500 Index has done over the past five months. As you can see at a glance [Irony Alert], the broad market has been giving us a beautiful uptrend to work with.
As a growth investor, I don’t invest in large-cap indexes like the S&P, but the general tendency of the market—its momentum—is still enormously important. Positive momentum in growth stocks (which is what the S&P tracks) gives a lift to the whole group, raising the probability that any stock you buy will find additional buyers and fuel big runs. The odd thing is that even a bear market—a persistent pullback in the major indexes—can be useful in a clearing-the-air kind of way. Bear markets drive lots of investors out of the market, leaving droves of stocks in the hands of people who bought them at reasonable prices and intend to hang on to them. And when the investors who came late into a rising market with enthusiasm (and not much else) are finally flushed out, the market can welcome back the value investors and growth investors who knew enough to come in out of the rain.
But a sideways market is nobody’s friend. A sideways market doesn’t invite new investors in and it doesn’t kick weak hands out.
The only way to make money in a sideways market is to identify still strong stocks (in what is usually a shrinking leadership group) and ride them higher until they too finally roll over. It takes accurate stock picking and a strong set of portfolio management rules to succeed under these circumstances.
I guess I’d say that the market is just dull these days, but it brings me to the market maxim I’ve been hinting at all along:
“Never sell a dull market short.”
And what that means is that even a sideways market may be setting up to move higher.
Yes, it might also be preparing to move lower, but in the long run, it always makes sense to bet on the higher side, because that’s the market’s default setting. Even if you include the two horrible mega-bears that gutted so many portfolios after the Tech Bubble and the Debt Bubble burst, you can see that the market wants to go up. Again, the chart (the S&P 500 over 20 years) tells the story.
And that’s why, even though I’d really like to give the market a boot to the backside and encourage it to make up its mind and do something, I will master my fatigue, control my impatience and let the market do what it does best, which is to fake out the maximum possible number of investors. And when the next move finally appears, I know that the Cabot market timing indicators, which don’t predict what markets will do, but follow their lead at all times, will let me know when it’s time to put my money back to work.
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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.
“There is one thing which America demonstrates invincibly, and of which I had been in doubt up till now: it is that the middle classes can govern a state. I do not know if they would come out with credit from thoroughly difficult political situations. But they are adequate for the ordinary run of society. In spite of their petty passions, their incomplete education and their vulgar manners, they clearly can provide practical intelligence, and that is found to be enough.” -- Alexis de Toqueville on Democracy in America, 1835
Tim’s comment: With his blue-blood heritage (his parents narrowly escaped the guillotine in 1794), de Toqueville had his biases. Fortunately, open-minded observation helped him overcome them. And so the average investor, too, can overcome the biases that impede his progress, if he only opens his mind and looks.
Paul’s comment:
I’m always amused that de Toqueville was so surprised that middle-class people could run a country. It must have been hard for a French aristocrat (a class that took heavy damage from the lower classes during the French Revolution) to see democracy actually working. Fortunately, our middle classes, although under economic assault, now have more complete educations and our manners are better. (I’ll have to admit that our “petty passions” are still very much in evidence.)
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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 7/27/15 — Sell Apple (AAPL)
Cabot Stock of the Month’s Tim Lutts writes that the dominant stocks of one decade are always in danger of losing their leadership status. Tim thinks that may have happened with Apple. Stock discussed: Fitbit (FIT).
Cabot Wealth Advisory 7/28/15 — Borrowing Trouble
Editor Nancy Zambell, who holds the reins on Investment Digest and Dividend Digest, writes about the ill effects that too much debt can have on a company. It’s an important fundamental that dividend-oriented investors should pay attention to.
Cabot Wealth Advisory 7/30/15 — Breadth, Divergences and the Meaning of it All
Mike Cintolo, the growth expert behind Cabot Growth Investor and Cabot Top Ten Trader, gives a great lesson in how to see what’s happening in the market and how to manage your portfolio accordingly. Stock discussed: Restoration Hardware (RH).
Sincerely,
Paul Goodwin,
Chief Analyst, Cabot China & Emerging Markets Report
