|There are pockets of strength|
|Written by L.A. Little|
|Wednesday, 18 July 2012 05:37|
The market is a market of stocks; of continuing opportunities at all times. Those opportunities sometimes move in tandem but many times - like now - they don't. That's when stock picking becomes crucial. That's when avoiding land mines becomes critical. There are pockets of strength out there; sectors that are doing well overall and showing relative strength. One that has been mentioned a lot is the home builders. You can see the strength in the ITB chart which captures that sector pretty well but there are others. Water utility companies have been on fire. Cable companies continue to look good and so forth and so on.
When the market goes sideways it builds a base. There's always the question of whether it is distributing (going lower after the sideways) or basing/accumulating (going higher afterwards). Since the trend is always right except at turning points it is best to simply stay synchronized with it on the time frame you are trading. The shorter your time frame, the more noise and resultant buys/sells. The longer you go out on the time frame curve, the less noise but the greater potential for larger draw downs before you recognize the turn when it comes.
There are ways to deal with these problems through qualified trends, mean time to failure of trends, etc., and I talk about those in my books and here on the site. As with everything, there are always trade offs and early warning signs. The key is to pick up on the warning signs and use it to adjust your exposure levels to something appropriate as the market twists and turns its way into the future.