Time for a Defensive Stance

09/04/2015 8:00 am EST


Michael Cintolo

Vice President of Investments and Chief Analyst, Cabot Heritage Corporation

In mid-May, the broad market topped out; many measures of breadth have been sliding ever since, cautions Mike Cintolo, editor of Cabot Top Ten Trader.

These two factors were the main reason we were advising a neutral stance (holding cash, being selective on the buy side, etc.) over the past couple of months.

And now, just about every nook and cranny of the market has been trashed, especially growth stocks.

All of this is classic topping action and now it appears the sellers have taken control. Hence, a defensive stance is appropriate.

This means you should hold even more cash and, for the most part, focus on building a watch list of high-potential stocks for the next sustained advance. Capital preservation is the order of the day.

The recent action has turned all of our market timing indicators negative and we take them very seriously.

They tell us that the short-, medium-, and long-term trends of the market are now down and it will pay you to react accordingly.

That means cutting back on buying, taking at least partial profits in your winners and selling your losers. Cash is likely to be your friend for a while.

Meanwhile, we would note that many construction-related stocks continue to act normally, which is about as much as you can expect in this environment.

Martin Marietta Materials (MLM), Vulcan Materials (VMC), D.R. Horton (DHI), and Fortune Brands (FBHS) are names to watch.

Interestingly, this group has shown a history of counter-trending in some bad markets, so it could offer opportunities once the market stabilizes.  

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