Our Cabot Top Ten Trader market timing system consists of two parts—one based on the action of three select, growth-oriented market indexes, and the other based on the action of the fast-moving stocks Cabot Top Ten features.
Specifically, we examine the action of the Nasdaq Composite, the Merrill Lynch Technology Index, and the S&P Small Cap 600 Index to determine whether big investors are putting their money into aggressive-type stocks. We want to see at least two of the three indexes trade above the lower of their 25-day and 50-day moving averages, and for that moving average to be advancing. If that’s the case, you can assume the bulls are in control.
As for individual stocks, we literally scan hundreds of charts per week, to determine what stocks and sectors are acting well, and which ones are beginning to come under distribution. At market tops, we usually see a rash of leaders break down through their 50-day moving averages, telling you big investors are getting out. These tend to be great profit-taking signals.