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Tuesday, May 3, 2011

Navigating Turbulence



Earthquakes, tsunamis, twisters, and terrorist assassinations -- it's a small wonder the stock market has continued to forge new highs through it all. In the greater scheme of things, the U.S. markets have been relatively impervious to global turbulence from one source or another. However, a potent combination of critical resistance levels in the major indices, general market seasonality, earnings season, and over-extended stocks, at least on a short-term basis, has summoned up a surge in volatility and along with it some extremely sloppy stock action. Individual stocks and sectors have been all over the map the past few sessions, despite relatively minor movements in the major averages. Many areas of the market are seeing a good deal of corrective action, and sector rotations have been swift and sharp. If you're finding yourself in the zig when you should be in the zag, it may be a good time to sideline -- and watch for awhile. Commodities got hit hard yesterday, but are trying to stabilize somewhat in today's session. Financials are also of interest at this juncture, having badly lagged the overall market advance but weathering the past two day pull-back very well, exhibiting nice relative strength.

The intermediate to longer-term charts at this point still look very bullish, and other corrective pull-backs in this market have been quite violent at times -- but also quite brief. Even so, it's imperative to protect profits and be diligent about not letting a trade move very far against you in this environment. There are plenty of scalping opportunities for the nimble, particularly on the short side, but it's also an opportune time to observe the action and begin to compile a list of stocks that are holding up well as potential long candidates when this sorts out.

Trade well.

-- Brinkley
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