Stick with the market leaders, here’s why
Timothy J. Truebenbach is the
President of True Capital Management and general partner of True Capital
Partners LP, a hedge fund. He uses a disciplined model that trades on the
intermediate-term time frame. For a free trial to Tim’s Nightly Stock Analysis
Report
click here or call
888-484-8220 ext. 1.
The stock market
continues to throw curve balls to investors looking to pick a trend
and stick with. In Tuesday’s trading, we saw the indexes give up Monday’s gains
and then some on much heavier volume.
Federal Reserve chief, Ben Bernanke has been less-than impressive in telling
investors what they want to hear. He has already stated that he will be ever-so
vigilant against inflation and the language he has been using seems to indicate
(based on futures trading) another rate hike coming shortly. His latest comments
said that he would be closely following economic data.
With uncertainty on the horizon about interest
rates and oil prices, we are simply seeing institutions have trouble committing
capital on an ongoing basis. This is simply derived by looking at price and
volume action behind the Dow, S&P and NASDAQ. The recent example we saw was
following the NASDAQ’s distribution concluding on 2/9 only to be closely
followed by a follow-through day by the Dow on Valentine’s Day (2/14.) The
latter event has landed us in a confirmed uptrend and where we currently stand,
but if more distribution days pile up it will again be time to let positions go
and raise some cash.
There are two ways we can go from here, both as a
market and as individual investors. First off, the market can roll over entirely
and fall into another Bear Market. I seriously doubt this will be the case
because our economy is growing and even as I type this, bearish advisors are
increasing while bulls are falling and sentiment like this typically indicates
the opposite setting up. If we do indeed fall into a bear market, defensive
stocks that have little room to fall and pay large dividends will be a safe
haven and most of these are found in the Dow.
On the other hand, if we do not roll over, but find our footing or even fall
into a trading range environment; small- and mid-cap stocks may very well be a
great place to seek out strong performers. Coincidentally, this is where many of
the market’s current leadership in the biotech, healthcare, investment
management and other sectors have been coming from.
Good trading!