Focus on a Market of Stocks -- Not the Stock Market

By Brian O'Connell

There's an uptick in the major stock indices over the past few weeks, which represents good news for investors who are long the markets.

However, writing in Real Money recently, James “Rev Shark” Deporre, says it helps to dig under the surface and see exactly how to play an extended market

Here's how he put it:

"If the S&P 500 was an individual stock, then it would probably be prudent to take some gains and wait for consolidation or a pullback before becoming more aggressive again. But it is an index that is supposed to indicate overall market conditions, and it does a fairly poor job of doing that."

"While the S&P 500 is extended, many individual stocks are not. In fact, many small stocks, growth names and speculative favorites are just turning up out of a months-long downtrend, and their charts look nothing at all like the S&P 500."

Rev Shark says to ignore the experts who rely on the major stock indices charts to plot a path forward. There’s a flawed assumption in that line of thought -- that stocks move in a highly correlated fashion. .

"That is not the way the market operates this year. There has been constant rotational action with different groups leading at different times and very deep corrections in certain market areas. It has truly been a market of stocks rather than a stock market."

Rev Shark isn’t buying the indices argument. He likes the trading action in many individual stocks and will stay bullish until that scenario shifts.

Get more trading strategies and investing insights from the contributors on Real Money.


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