Transition time

It is transition time in markets. The Monday sell off was indicator of distribution in some sectors and stocks running on adrenalin. The distribution in those names will continue. In fact more high flying groups would join in the slow distribution phase. New sectors are now breaking out. The money is moving in to sectors which were not part of the original up move. This can be a good dynamics as the rally becomes more broad based. But sometimes when laggards start moving up it can also be indicating that the rally is over and under the guise of action in the new sectors a serious and slow distribution is happening.

The brokerage sector is showing up on my short scans, the torrid rallies in GS, BSC, OXPS, LEH, AMTD, ET, etc. seem to be reverting or pausing. Similarly the exchanges like NYX and NMX are clearly showing the hype on exchanges was a good ruse to palm of shares to some unsuspecting fools. Most of the times when everyone gets it the party is almost over.

Last few weeks saw flurry of activities in exchanges with everyone saying , you can never go wrong buying exchanges. Mom and POP guru Crammer was hyping NMX pre IPO. James Crammer in his own book talks about how he told everyone to sell Thestreet.com shares when they popped up on first day of IPO. But here he was pumping everyone to buy NMX before the IPO. Good entertainment may not be the best investment advise. As a rule following advise of anyone on CNBC is a road to disaster.

The oil and metal sector is making a move. So bonds should also make a move. The inflation theme might be back soon. Market will continue to consolidate or move sideways for few weeks and then make a move either way. By that time we will be in the earning expectation for next quarter cycle. If you keep a tab on earning trends, you will get a good idea on what is likely to happen.

During the transition phase many times buying the high relative strength names or stocks at top of range after extended move up may not be the best strategy. Those stocks are most vulnerable to sell off especially if the sector has been hot for sometime. You have to find new stocks breaking out with lower relative strength and having new earning power. The relative strength strategy needs adjustment in such times.

I am keeping an eye on DSW, DSW INC and ICE, Intercontinental exchange based on earnings. There are some interesting candidates with potential showing up on my scans :

ALY,Allis-Chalmers Energy Inc
ATI,Allegheny Technologies
BONT,Bon-Ton Stores Inc
BTJ,Bolt Technology Corp
DBRN,Dress Barn Inc
DIL,Dyadic International Inc
DVAX,Dynavax Tech
EPG,Environmental Power Corp
GEOI,Georesources Inc
GHDX,Genomic Health Inc
GLDN,Golden Telecom Inc
IGLD,Internet Gold-Golden
IPS,Ipsco Inc
KEQU,Kewaunee Scientific Corp
OIH,HOLDRS Oil Service ETF
RNIN,Wireless Ronin Technologies Inc
SIGM,Sigma Designs Inc
TGEN,Targeted Genetics Cp
USEG,U.S. Energy Corp Wyo
VIP,Vimpel Communication Ads