The Cabot Market Letter — one of the top-performing newsletters of the past decade — is moving back into stocks, seeing the odds as “increasingly good” that the market has bottomed.
“We’ve had the snapback; we’ve had the rally,” Michael Cintolo, the newsletter’s editor, wrote yesterday. “And while a technical correction is quite possible from here, the odds are increasingly good that the ultimate low of the bear market has passed, and that buying select leading stocks now will pay off in the weeks and months ahead.”
Cintolo says the newsletter — which has averaged annual returns of 3.69% over the past five years and 2.33% over the past decade (compared to total returns of -6.14% and -2.55%, respectively, for the DJ-Wilshire 5000) — is “leaving behind our 100% cash position” and putting 25% of its funds into stocks. Part of the reason involves the newsletter’s timing indicators, including the “Two-Second Indicator”, which has seen the number of stocks hitting new 52-week lows “dry up dramatically” over the past two weeks.
But in discussing another key reason — the Federal Reserve’s $1 trillion-plus plan to buy up Treasuries and mortgage-backed securities — Cintolo seems to be channeling the great Martin Zweig: “An old Wall Street adage says, ‘Don’t fight the Fed,’ meaning that when the Fed is working to stimulate the economy by holding interest rates low and throwing serious money into the system, the economy tends to respond in time, but the stock market tends to respond sooner,” writes Cintolo. “A matching truism is, ‘Don’t fight the tape.’ That’s ticker tape, as in the old days, and it means that you should always strive to be investing in synch with the market’s main trend. (The rhyming truism is, ‘The trend is your friend.’)”
Cintolo says that market bottoms are never fun. “But because we know what can follow (what goes down must come back up), we’re actually pretty excited about the way the market is now beginning to climb out of the big bad bottom of early 2009. … The next bull market is going to create some fond memories.”