There are some markets that favor indexing and some markets that favor stock picking. We are in an indexing market, today. The best way to keep pace is to simply own index ETFs.
In stock picking markets, there tend to be strong sectors and themes. You can outperform by finding the pockets of momentum and trading them aggressively. Good recent examples were the runs in oil, metals, mining and biotechnology.
Today the action is largely driving by a smaller group of large-cap growth stocks. Amazon (AMZN) is the key leader, but there is also is relative strength in FATMAN names such as Microsoft (MSFT) and Netflix (NFLX).
What is important to understand is that it is primarily the indices that are driving the individual stocks, and not the other way around. It is the stocks that have the heaviest weightings in the index that are moving the most. Small-cap names, while positive, are not doing much.
Index-driven action can be quite frustrating for stock-picking traders. The opportunities to pick off a few good trades and outperform are extremely limited. Simply holding something like the ProShares Ultra QQQ (QLD), instead, is paying off much better.
As a trader that focuses primarily on stock picking, I'm not too excited about the action today. My stocks simply aren't doing much, as they tend to be smaller caps. That is the nature of the beast. We just need to be aware of what is happening and do our best to adapt.
