In the more than 50 years that Cabot Wealth Network’s expert analysts have been providing research, insights and recommendations to help people like you become more successful investors, there are not many market situations we haven’t seen.
At the same time, each gyration has its own nuances, and we felt it would be useful to give you a more detailed understanding of where we are, where we’re headed, and what you should do now.
To that end, our Senior Analyst Brad Simmerman sat down with Cabot’s Chief Investment Strategist Mike Cintolo. Excerpts of that conversation follow. In addition to serving as Chief Analyst of our flagship Cabot Growth Investor and Cabot Top Ten Trader services, Mike is a 25+ year industry veteran and an award-winning analyst.
One final note: While many find it fashionable to predict doom and gloom for the stock market, Cabot takes the opposite approach. Throughout history, the stock market has risen and outperformed almost every other category of investment in the long run.
For that reason, we think serious investors should always stay tuned into what is going on, looking for investment opportunities. Those that stayed engaged and continued to look for opportunities in 2009 greatly outperformed investors who took their money and ran. We expect no less now.
And, let me remind you that as a Cabot Wealth customer, you are always able to contact the analysts for your services to address your questions or concerns.
We will continue to keep you posted as the situation develops.
Yours for investing success,
Ed Coburn
An Interview with Mike Cintolo, Cabot’s Chief Investment Strategist
Brad: Well Mike, it’s certainly been a hectic past few weeks, so I’ll just hand it over to you: What’s your take on the market?
Mike: So, in terms of my take, I’m a trend follower at heart, and right now, my intermediate-term trend model (Cabot Tides) is negative, and at week’s end, my longer-term trend model (Cabot Trend Lines) could also join the negative camp. Throw in the fact that most stocks are in the same boat and that growth stock leadership has decisively cracked, and I’m highly defensive—we’ve had at least 45% in cash in Cabot Growth Investor’s Model Portfolio since mid-December and are up to 80%-plus in recent days.
Now, in terms of putting a bit more color on things, one of my bigger thoughts is that the major indexes just had two very good years, and growth stocks had 10 to 15 amazing months, depending on what stock and sector you’re looking at. Then we had a two-month distribution phase in December and January, and now we’re three weeks into this sharp decline with all sorts of leadership breaking.
I’m not saying we now have to go down for nine months or a year or anything like that—in fact, I very much doubt that—but it will probably take a little time to re-set things and for the market to eventually bottom out.
The good news is that, after these re-sets or mid-cycle corrections, to use a term, we’ll get a sustained advance with early-stage leadership—new names that can really trend. So that’s my main focus now, finding those fresh winners of the next advance.
Brad: You used to the terms “re-set” and “mid-cycle” correction, while some are wondering if this is the start of a bear market of sorts. Can you elaborate on all of this?
Mike: Good question. What I meant by mid-cycle correction is that over the past couple of decades, we unsurprisingly have deep corrections after a couple of good years. Not to get too far into it, but after recovering in 2009-2010, the market had a choppy, flat-ish 2011 that featured a 15% to 20% dip in the summer and fall.
After a great 2013 and an OK 2014 came the 2015 second-half dip. The same thing happened after a great 2017 and a solid first half of 2018: Q4 of 2018 saw a big correction. All of those served to re-set the overall advance and not only led to higher prices but often had some new leaders to latch onto—hence the term re-set.
All in all, though, I’ve never been a big fan of labels—if someone says, “bear market,” some will think of 2008 and a huge recession, but maybe we’re talking about a three-month, 20% decline that leads to a quick recovery.
But both could technically fit the definition, right? My overall point is simply that we’re headed down now and likely to need time to bottom out, with leadership resetting.
Brad: I want to get to those fresh winners. But first, let’s talk a bit about the past winners—you and other Cabot advisories made a lot of hay in various names last year that have since fallen 35% to 50%. What are your thoughts on that group in general?
Mike: So it obviously depends on the particular stock, but I would say most of the glamour names—stocks that ran for a year or more and had many-fold advances; something like AppLovin (APP) comes to mind—my guess is the top is in. A drop of 50% or whatnot in three weeks is not normal at all, even in sharp corrections, so the point of peak perception has likely been reached.
Of course, bounces are going to happen—hopefully one has begun this week—and these rallies could be big percentage-wise; if something crashes from 100 to 45 and then bounces to 65, that’s a 44% bounce.
But these former highfliers are likely to hit resistance after that bounce and have lots of ups and downs as they try to build a bottom. My guess is that, once a new sustained uptrend emerges, most things like APP and others won’t be leaders.
Again, though, it depends on the specific stock; I could easily see a few names that have fallen sharply but not imploded (say, down 35% from their highs) round out over a few months and get going again. But overall, the damage of late combined with the giant runs in 2023/2024 tells me newer, fresher names will likely lead the next upleg.
Brad: Got it. Now, onto the news of the day, mainly tariffs and the economy. I know you’re not overly focused on the news, but any thoughts on these topics that you’d like to share?
Mike: Honestly, not much beyond what you read from the headlines. My main thought with this stuff is to be aware of it, yes, but when it comes to the market, to mostly ignore it—at some point the market is going to look past this issue and move on, but the only way to tell when that’s the case is by watching the market itself. Or as often happens, the market simply changes its focus. I’m not saying tariffs aren’t an issue, but I’m not sure reading every headline will help you keep and eventually make more money.
Brad: Fair enough, figured you’d say something like that. Back to the market itself, now that we’re clearly in a downtrend, what indicators and signs are you monitoring for a market low … and are you seeing any green shoots yet?
Mike: Right now, then, I’m watching a few near-term measures of oversold conditions and sentiment, stuff like the Volatility Index (VIX) and the percent of NYSE stocks above their 50-day or 200-day lines [see charts below]. We don’t have to see a washout, but a “real” spike higher in the VIX and lower in the breadth measurements often precedes at least a near-term low; from there, it’s really about simply having a low to work off of and seeing how individual stocks react.
Also, while I hesitate to call it a legitimate green shoot quite yet, one of our key market timing indicators has caught my eye: Our Two-Second Indicator [below] simply measures the number of stocks hitting new lows on the NYSE each day, which we’ve found over the years to be a great barometer for the health of the broad market.
Again, it’s early, but notice how the peak in the new low figure came on March 4, more than a week ago, despite the plunge in the indexes since then. We’ve also seen a similar pattern in the S&P 500. Obviously, one horrid day could change this, but the longer that peak in new lows holds, the better the odds we put in some sort of low.
Brad: OK, that’s a lot of good stuff to watch. But what about individual stocks—anything piquing your interest out there?
Mike: Honestly, it’s a bit early to separate the wheat from the chaff—that will probably happen after a bounce—but I’m always screening, and on the growth side of the equation, I would say many small- to mid-sized biotech and medical stocks are intriguing, things like Axsome (AXSM), TG Therapeutics (TGTX) and even GeneDX (WGS) are holding well even as the market flails. On the sturdier side, I still see aerospace stocks, especially those involved in the commercial jet-building space, to be resilient overall; GE Aerospace (GE) is a blue-chip name there that, while taking some lumps, isn’t in bad shape at all. To be clear, good stocks can go bad in a hurry in a weak market, so you have to be careful; at this time, I’m mostly in wait-and-watch mode. But so far, the resilience in these types of names has been solid.
Brad: That’s great, Mike. Any last words before we wrap up?
Mike: Oh, just to say that we’ve been here before, and what we’re seeing now is not the end of the world. Obviously, I’m defensive here and am certainly not ruling out a deeper retreat, but the larger point is that sharp corrections and consolidations happen, and after each one, a new sustained uptrend emerges, usually with fresh leadership that big investors are tripping over themselves to buy.
The big money is in the big swing—owning those new leaders early in their advances and holding for months as they mature—and that should be ahead of us once this downturn is over.
That’s a big carrot to look forward to—so the goal is to get from here to there with as much capital and confidence intact as possible. If you do that, there should be plenty of upside for your portfolio after this correction bottoms out.
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