Credit: Shutterstock photoEarlier this week, I had an exchange on Twitter that I wanted to share with you here. I tweeted (aka sent out a message) a photo of the mantel in Cabot's office. The mantle is engraved with a Jesse Livermore quote that we often refer to here, "Markets are never wrong; opinions are."
(Our mantel also has reversible animals on it that can change from bull to bear and back again. We use these to show the status of two of our market timing indicators.)
A fellow Livermore fan tweeted back at me saying that while they loved the trader's wisdom, markets are not infallible. Ain't that the truth!
But I don't think that Livermore meant that markets are infallible when he wrote the above quote. What he did mean was that investors should always heed the message of the market and not the latest opinion being spouted by any number of talking heads on TV. (There was no TV in Livermore's day, but I have no doubt he would have ignored it and focused on the market.)
At Cabot, we often write about why we don't make predictions, because what we say we think will happen doesn't really matter. What matters is whether the market goes up or down.
Livermore's quote is the underlying basis for Cabot's market timing indicators, which have been honed for nearly 40 years in Cabot Market Letter. Editor Michael Cinolo uses our three indicators--Cabot Trend Lines, Cabot Tides and the Two-Second Indicator--to keep subscribers on the right side of the market, whether it's going up, down or sideways.
The Cabot Trend Lines are our unique way of determining the long-term trend of the stock market. As long as both the S&P 500 Index and the Merrill Lynch 100 Technology Index fluctuate above their respective trend lines, we consider the market to be bullish. If both indexes are below their trend lines, we are in a bear market.
The Cabot Tides uses five different market indexes to help determine the overall intermediate-term direction of the stock market. They are: S&P 500, NYSE Composite, Nasdaq Composite, S&P 600 Small Cap and the Merrill Lynch Tech Index. The market is considered to be advancing on an intermediate-term basis if at least three of these five indexes are advancing. And contrarily, the market is deemed to be declining if at least three of these five are declining.
The Two-Second Indicator's specialty is detecting market tops. When the number of stocks hitting daily new lows on the NYSE is greater than 40 while the major indexes are rising to new peaks, look out! It's telling you that, internally, sellers are in control of most stocks, and the indexes are masking this weakness.
However, if the number of new lows don't expand to greater than 40 until after the indexes are five days or longer off their peaks, the Two-Second Indicator is simply telling you the market is entering a correction. This correction could be deep, and thus you should still practice caution. Finally, when new lows are less than 40 day after day, that's a sign of a healthy, robust market--the buyers are firmly in control of most stocks.
Right now, all three of our market timing indicators are positive, giving us the go ahead to tell subscribers to buy some of the best growth stocks in the market. In fact, Cabot Market Letter Editor Michael Cintolo recently wrote this:
"Our market timing indicators gave us early buy signals last spring as the bull market kicked off, and except for a few weeks of caution, have kept us bullish ever since. While the ride won't be straight up (as we've seen most of this month), the odds continue to favor higher prices in the weeks and months to come."
This market timing discipline is how we beat the market handily during the last decade. From the market's bottom in March 2003 to the bottom in March 2009, the S&P 500 lost 18% in total and the Nasdaq lost 3.5%. Cabot Market Letter, however, left them in the dust: Advancing a total of 94% during the past six years (nearly 12% per year).
Or consider just the past two years. Cabot Market Letter has beaten the market by 64%, according to Timer Digest, which recently ranked Cabot Market Letter third among all long-term timers.
Until next time,
Elyse Andrews
Editor of Cabot Wealth Advisory
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
