Focusing on Reality

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Stocks are drifting higher this morning, in the face of quad-witching options expiration today. Some of the beaten-down coal names, such as ANR, look to be seeing some rotation down. As I discussed in my video last evening, the retail/consumer discretionary space is perhaps a bit too extended short-term. However, that is not enough of a reason to turn bearish on stocks. Instead, markets that are trending higher tend to see a rotation, or “lock and roll” away from those extended names and down towards the shippers, coals, and other assorted laggards heretofore. Rather than arguing with the prevailing trend, the smarter bet has been to look for sectors and stocks setting up behind the leaders.

The interesting thing about the market over time is that it has a great knack for rendering even the most intelligent of traders to be discombobulated when an “obvious” top or bottom does not materialize in a timely fashion. Corrections can happen at any time, but the take-home message from my posts over the past few months has been that it is usually a sucker’s bet to try and time the exact top of a bull market correction. While a stock like Apple is clearly extended beyond a quality entry point for long swing traders, that does not necessarily mean that it represents a good shorting opportunity, let alone a reason to turn bearish on the market as a whole–Just ask those traders who called the top to Apple weeks ago on Twitter.

As we work through OpEx, I expect to see plenty of randomness in the intraday price action. In other words, I do not think trying to actively trade OpEx is a good idea. To my eye, the key issue for this market is whether we see continue to see that rotation away from extended consumer discretionary/retail stocks towards transports, financials, materials, energy, etc.

That is the reality we are dealing with here in a trending market, until proven otherwise.