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Cabot Market Letter’s Bullish Outlook

Columnist Peter Brimelow comments on top-performing Cabot Market Letter’s bullish market view.

Excerpt from MarketWatch

Brutal week, but battered bulls still unbroken

Commentary: Stocks are down for the year, but some see hope

By Peter Brimelow, MarketWatch August 16, 2010

NEW YORK (MarketWatch) -- Stocks are down on the week, and the year. But that still hasn’t broken two battered, top-performing bulls.

Cabot Market Letter turned carefully bullish earlier this summer. (See July 22 column.) That was significant, because Cabot was one of the first letters to recognize the post-2002 bull market—and to bail out in late 2007. More recently, it was bravely bullish in 2009. (See June 18, 2009 column.)

In its most recent issue, Cabot reflected ruefully:

“If most of your portfolio holdings are in today’s market leaders, like Baidu (BIDU), Las Vegas Sands (LVS), Rovi Corp. (ROVI), (CRM) and VMware (VMW), you’re sitting pretty. This feels like a healthy bull market to you, and you’re probably itching to put even more money into your top-performing stocks.”

These, coincidentally, are all stocks on Cabot’s current Buy list.

The letter went on:

“On the other hand, if you’re holding index-based mutual funds—which have made virtually no progress this year—or if your portfolio is loaded with stocks that aren’t in that narrow group of leaders, you feel none of that bull market magic. You see this as a treacherous market where the bottom might drop out at any minute. And you wonder if you should move even more of your assets to the safety of cash.”

Cabot is currently 40% in cash.

It concluded:

“Summing up, we’re still more positive than negative. But—and it’s a big but—as long as market leadership remains narrow, we’ll remain apprehensive. We really can’t be gung-ho about this market until we see breadth improve substantially.”

This is a paradoxical conclusion because Cabot’s long-term indicator, a moving average system, just went positive.

Cabot’s comment: “We’re not second-guessing the signal, but we do realize that the market remains in a choppy, whipsaw environment. Thus, while the new buy signal is another breeze at the market’s back, we wouldn’t put more money to work because of it.”

Well, actually, that does sound like second-guessing the signal to me. But it’s also immaterial. It’s the editor’s interpretation that you pay for. The only question is whether his interpretation works.

Over the year to date through July, Cabot is down 0.4% by Hulbert Financial Digest count, versus 0.7% for the dividend-reinvested Wilshire 5000 Total Stock Market Index. But its long term-record is much stronger—for example, it’s up 3.99% annualized over the past very rough five years, versus just 0.25% annualized for the total return Wilshire 5000.

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