Watching the Correction for Setups

 | Oct 13, 2011 | 10:54 AM EDT
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We are finally seeing a bit of a long-awaited correction. The selling isn't too aggressive, but breadth is running 900 gainers to 4000 decliners, which is the worst it's been in a while. Stocks remain highly correlated, which is a function of the focus on headlines and market direction rather than on individual stock picking.

I've been complaining lately about the difficulty of finding good entries when we have such lopsided action on low volume, but that can change quickly on just a little weakness.

One thing you can be sure of is that the recent action has made a lot of underinvested bulls anxious to buy pullbacks. They are going to keep some bids under this market, and I don't expect to see downside momentum build quickly. If we struggle for a while and the bounces fade, then the dip buyers will start to back off, but the first few dips are likely to be bought quickly.

I have a few minor shorts and a couple minor longs, but mainly I'm watching to see if some of my favorites start to set up better so I can build them back up. I did an interview with Kate Stalter for if you'd like to hear about a few names that I'm watching.

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