Highly Correlated Action

 | Oct 31, 2011 | 10:37 AM EDT  | Comments
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Stock quotes in this article:

cmg

,

amzn

,

deck

,

lvs

,

pcyc

,

mobi

,

taom

,

cvvt

,

gsvc

One of the most challenging aspects of this market recently is how tightly correlated the action in individual stocks has been. They move in lockstep depending on how the headlines are being perceived.

This morning, the big-picture news is being seen as negative, and that means stocks are moving together to the downside. Breadth is running 750 gainers to 4300 decliners with all major sectors in the red. A few big-cap names such as Chipotle (CMG), Amazon (AMZN), Deckers Outdoor (DECK) and Las Vegas Sands (LVS) are bucking the trend, which is a good sign, but trying to fight the overall action with individual stock picks is a challenge.

I'm optimistic that we will start to shift to an environment where stock picking matters. The key is being less sensitive to Europe, and today should be a good test of that.

I'm trading GSV Capital (GSVC) this morning as a sympathy play on the upcoming Groupon initial public offering, which is scheduled to start trading Friday. Pharmacyclics Inc. (PCYC) is a biotech that has shown very good relative strength, and I'm stalking it as it challenges resistance at $13.50.

I mentioned Friday that there was some unusual action in small-cap China names. I'm seeing a continuation of that today as the hot money looks for action. I call these garbage stocks, but they can be good trades when the momentum money is anxious for new themes. A few on my radar include Sky-mobi (MOBI), Taomee Holdings (TAOM) and China Valves Technology (CVVT).

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