The Market Says “Wait!”

Stock Market Video

The Market Says “Wait!”

Fortune Cookie

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The Market Says “Wait!”

There are lots of moving parts to a successful growth stock portfolio.

There’s buying, which I always think of as “the fun part.”

Then there’s selling, which seems to me like “the difficult part.”

And finally, there’s waiting, which is the part that drives growth investors nuts.

Right now, equity markets are caught in an up-and-down cycle that makes investors think they’re trapped on a rink with a bipolar hockey player who’s having trouble adjusting his meds. When the player’s happy, things are all crisp passing and goals. But when the player’s mood shifts, it’s much less pleasant. And when he can’t make up his mind, it’s unpleasant as hell.

If you look at this chart of the S&P 500 Index since early November, you can see when the goals were being scored and when you were being checked into the boards and counting your teeth.

As you probably know (if you’ve been reading Cabot’s growth advisories for a while), the relative position of an index to its 25- and 50-day moving averages is a vital piece of intelligence. When an index is above the lower of those two moving averages, markets are reckoned to be in an uptrend, and the green light is flashing for buying growth stocks. But when indexes drop below the lower of those moving averages, the Cabot growth rules advise reduced buying and tighter mental stops on current holdings.

The chart starts with the S&P in positive territory. That shifts to negative on December 16, then back to positive on December 18. Things turn negative again on January 5, then flip back to positive on January 8, then deteriorate again on January 12.

(It’s important to note that Cabot growth advisories like Cabot Market Letter aren’t quite as hair-trigger as all that. The Market Letter uses a basket of indexes to gauge the market’s momentum, and manages its stocks according to their own individual charts, not just the twitches and jerks of the market. But this kind of choppy environment still puts pressure on growth investors to try to stay in step with a market that’s tripping over its own feet.)

When I say that waiting is the part that drives people nuts, I’m not kidding. Growth investors have a bias toward action, and working on a watch list (the responsible option) or playing hours of Candy Crush (the slacker option) can’t substitute for active investing.

Still, if you want to make money as a growth stock investor, patience is exactly the virtue you need most right now. A consistent trend is a growth investor’s greatest friend, whether it’s up or down. When it’s up, you can buy with both hands and make money. When it’s down, you can sell out, go to cash and catch up on your reading.

But in this kind of schizo market, it’s best to get in touch with your zen self and just wait. Waiting is hard, but it’s what the market wants from you right now if you’re on the growth team.

In this week’s Stock Market Video, Mike Cintolo discusses the market’s deterioration of late and how a cautious stance now looks appropriate; just about the only stocks in real uptrends are defensive names, while most other stocks chop around (at best) or sell off (at worst). Still, one sector is finding buyers after a three-year bear market, and many growth stocks remain near the top of their multi-month launching pads. Mike highlights the stocks that are resisting the market’s pull, and details what he’s looking for going forward.

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

Tim’s Comment: I assume the entire lecture elaborated on these points further, and gave some guidance as to how much skepticism might be appropriate. Ideally, one is open to hearing new ideas, but skeptical about accepting them without further research. Happily, since Sagan gave his lecture, the Internet has made that research a lot easier. Sadly, there remain legions of people who have neither the inclination to do the research nor the logical thinking ability to process what they might find.

Paul’s Comment: I picked a longer quotation for this week’s Fortune Cookie because I think this topic is important. I love the shorter quip that goes: “If you keep an open mind, people will try to put things in it.” But it’s really no joke. The real danger as we get older isn’t hardening of the arteries, it’s hardening of the opinions. Being able to touch your toes is nice, but being able to touch a new idea is a life skill for a stock investor.

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 1/12/15 – What’s Next for Oil? 

In this issue, Cabot Stock of the Month’s Tim Lutts looks at the consequences of the drop in oil prices and how to play it. Tim also gives the fifth in his series of 10 revolutionary stocks. Stock discussed: Illumina (ILMN).

Cabot Wealth Advisory 1/13/15 – Why Options are Necessary in Investing 

True to his word, Cabot Options Trader’s Chief Analyst Jacob Mintz uses an example of an option on Alibaba (BABA) to show how options can achieve great results for modest investment.

Cabot Wealth Advisory 1/15/15 – One Cheap Growth Stock

In this issue, Mike Cintolo, Chief Analyst of Cabot Market Letter, looks at the power of relative performance as a guide to stock strength, using gold stocks as a current example. Stock discussed: Outerwall (OUTR).

Have a great weekend,

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


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