This Is the Biggest Challenge in the Stock Market Right Now

 | Dec 04, 2017 | 5:09 PM EST
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Although the DJIA and S&P500 are still posting strong gains, there are pockets of 'sell the news' action. The number of stocks trading at intraday highs has dropped quickly. Financials have had a huge run but now there are some signs of profit taking there. Other groups like railroads, restaurants and consumer services have been leading but many of the key names are looking very extended now.

If you primarily play indices, you likely view this market much differently than stock pickers. The bears that are trying to short the senior indices are having a very hard time. The softness in the Nasdaq indices is not spilling over and there isn't any real 'sell the news' taking place in SPDR S&P 500 ETF (SPY) , SPDR Dow Jones Industrial Average ETF (DIA) or iShares Russell 2000 Index ETF (IWM) .

For stock pickers the challenge has been to shift from the 'buy the dip' plays that have worked so well to other sorts of setups.  I've been seeing more stocks that are coming out of bases and less pure momentum.  California Resources (CRC) and Smart Sand (SND) , in the oil sector, for example, do not have strong momentum but do have solid bases that provide support.

The great temptation of this market is to keep trying to call a top in the DJIA or the S&P500.  Both look quite extended and, as I wrote this morning, the setup for selling the tax news is quite good.  The timing is extremely difficult and it is likely that there are still plenty of computer algorithms looking to squeeze overanxious bears.

I'm focusing on setting aside timing issues and am mainly looking for stocks that have good setups and are in the sectors benefitting from rotation.

This market is not nearly as easy as you would think if you are just looking at the DJIA. There is a lot of rotation and limited momentum after the gap-up open.  Stay selective with new buys.

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