Furious sector rotation

Sometime reading the market is tricky. One of the prominent feature of the current market in last few weeks is the furious sector rotation. Money has flowed out of sectors like commodities and energy in to retail, restaurants, technology and software. Every day a new sector is attracting attention. In recent weeks the transport and biotechnology are finding a bid. Lot of money flow is concentrated in the large cap. Many stocks after breaking out have just hung on to gains but not gone in to rally modes.

Now this kind of scenario creates a bit of dilemma. Large caps lead in the later part of the bull move. But at the same time speculative sectors like biotechnology and technology are also attracting buying. So the message of the market is mixed. It possibly points to a protracted sideways move.

A range bound market presents special challenge as many breakouts do not go very far off either on upside or downside. Such challenging markets are the playground for certain kind of strategies. While we would like to have a market making a strong move in either direction, one has to adopt to the given condition.

I continue to find opportunities on both long and short side, but many of them are giving lesser profit than what I like to get. Over the years I have learned that these kind of market environment are cyclical and bad times are followed by good times. Such market environment is when you need good risk management strategy. I am using time stops on lot of my positions in this environment. So if a stock is not making an expected move in a desired time frame, I am out of it. I am also aggressively moving stops to protect profits.

Note: Some of you have requested that Friday is not a good day for the chat on "developing a good market feel". So I am planning to re-schedule the online chat sometime next week. If you are interested please send an email and I will let you know about the time and other details.

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