Many stocks are in correction mode yet the broad market stock indexes like the S&P 500 Index (SPX) and Dow Jones Industrial Average (DJIA) have not reflected this.
As I write this commentary, micro-blogging service Twitter (TWTR) has just started trading. Twitter is getting a lot of attention from major media outlets even as other stocks roll into correction mode. I prefer to rely on individual stock charts to guide my investment and trade selections.
Stocks that breakout and follow through with big trading volume are few and far in between and recently I have seen the reversal of breakouts in many issues. On October 22, Netflix (NFLX) is an example of a major breakout reversal.
So while you may see the averages go higher and the major media outlets announce how normal things are, I’m looking for opportunities with inverse ETFs that short the market and/or for new leadership stocks to buy for when this correction ends.
The oil market drop is of particular interest to me as this may indicate a slowing of the world economy. Airline stocks have benefitted handily from this drop and I Iike the following stocks: Delta (DAL), Air Lease (AL), Air Castle (AYR), and JetBlue (JBLU).
I would like a reset correction to occur in the broader stock market before I take any major positions in these airline stocks.
As the hype and euphoria calms down, I will have a better picture of what stocks are built on a solid foundation. So while many investors and traders turn away from the markets and lose focus during corrections, I will increase my work scanning for the gems. If the correction becomes a deeper sell off or a bear market, I will look at the inverse ETFs as a potential trading idea.
Some once-high flying stocks are starting to come back down to earth. Consider the recent cases of Tesla Motors (TSLA), SolarCity (SCTY) and Celldex Therapeutics (CLDX).
Corrections can be very good for the markets as they cleanse away stocks and sectors that move into bubble trading zones.
The investments discussed are held in client accounts as of October 31, 2013. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable. Past performance is no guarantee of future results.
