This Chart Proves the Dow Doesn’t Matter

If you aren’t buying the right stocks, you might as well sit on the sidelines.

Gains aren’t distributed evenly during rallies. That’s an uncomfortable truth the financial media machine isn’t telling you about this market.

Instead of a magical rising tide that lifts all stocks, we’ve witnessed a couple of strong sectors boost the major averages higher for a few weeks at a time. As these stocks become overbought, they consolidate as a new group takes the baton and sprints higher. Repeat this process a half dozen times and you have the blueprint of the post-election rally.

What results is a stair-stepping market that steadily pumps out the gains. While every stock isn’t ripping higher five days a week, there’s always a hot new sector keeping the broad market in the green.

This rotation is one of the hallmarks of a bull market. It’s commonly referred to as a stock picker’s market. And it can be a great environment for booking short-term trading gains.

The trick for us as traders is to grab the tails of the right trends as they begin to take off. That’s the only way to top the performance of the major averages. But if you load up on the wrong stocks, you can kiss your profits goodbye.

You don’t need any advanced computer programs or a finance degree to see huge rift between the market’s haves and have-nots. Look no further than the performance of biotech stocks vs. retailers and you’ll quickly see what I’m talking about…

Biotech stocks are waking up from an 18-month slide and are beginning to lead the market higher. This group is up more than 20% year-to-date. Meanwhile, traditional retailers are falling apart. As Amazon continues its path toward world domination, traditional retailers are down nearly 5% year-to-date.

Today’s chart perfectly illustrates why you shouldn’t give a hoot what where the Dow or S&P 500 ends up every day.

The financial media loves to present the game of investing as a death match between the bulls and bears. They’ll focus on biotech merger rumors on days when the averages are flying higher – then they’ll worry about struggling retailers dragging down the S&P on days the market finishes in the red. Whenever an analyst pops up on the TV, the hosts will try to pigeon hole him into the bull or bear camp as if investing is a team sport.

But the most successful traders in the world don’t give a damn about bulls or bears. Instead, they’re comfortable adapting to changes in market conditions.

Remember, we’ve been hearing all about how the stock market rally is overheated since November. This is the anthem of the bull that stayed behind. He received an invitation in the mail. But for whatever reason, he never made it to the party. Maybe he was stuck in retail stocks instead of buying the new market leaders.

Don’t get me wrong– the market won’t go up in a straight line forever. The branches will eventually shake and stocks will slide. That’s perfectly normal. Just don’t expect the financial media or the sold-out bulls to see it that way.

Naturally, your best bet is to ignore this noise and focus on your trades. The market is prepared to hand out plenty of gains to anyone who can pull the trigger on some winning trades.

Stay nimble and listen to the market. Leave the bull and bear soap opera to the talking heads on TV…

Sincerely,