Even $108 oil, soaring food prices, and rising interest rates can't seem to put a dent into this rally.
But is all as it seems?
Doesn't the market always look its best when it's actually at its worst? How many more people now "feel" more comfortable about buying stocks than, say, six months or a year ago?
Is the investing public becoming too complacent?
My asking this question is not to say that money still can't be made on the long side. I absolutely believe it can.
What I am suggesting is that the low hanging fruit ... the "easy money trades" ... are long gone. In my opinion, we have entered a true stock picker's -- or, I should say sector picker's -- market.
The action in the S&P 500 last quarter pretty much confirmed this when all but 2 of the 11 sectors that make up the S&P 500 failed to outperform the index. The last time that happened was in Q1 of 2000, and right after that came the so-called "Tech Wreck".
But don't be in too quick of a rush to go short yet. It's not quite the right time; the bulls, fueled by access to cheap money, are still chasing returns. The key here is to take a more focused approach and trade the momentum rather than hunt around for "under valued" trades.
All the action right now is happening in the "hot" sectors: Energy, Metals, Industrials, Latin America, Precious Metals, Agricultural Commodities and Agricultural Stocks.
Last quarter alone, energy made up a whopping 42% of the gains seen in the S&P 500! So, unless you had direct exposure to the S&P 500 last month, or direct exposure in just two of the S&P 500 sectors, you actually under performed the broad market!
This graphic shows the actual year-to-date performance of each sector within the S&P 500 ...
In the beginning of a bull market, just about everything rallies. As bull markets mature, however, they narrow in scope. Fewer and fewer sectors participate in each successive push higher, until finally the rally fails and the bear market begins.
For now I wouldn't worry too much about trying to predict when the next bear market will make an appearance. There is still plenty of money to be made trading the "hot" sectors I referenced earlier in this article. Just don't drink the Kool-Aid and believe that we are entering a new "golden age" of US-led growth.
We are a long way from that!
We can't even get our budget in order for goodness sakes! Remember: An overly accommodative Fed, an eroding dollar, and trillion dollar plus annual deficits are not easily overcome. Huge dislocations are sure to follow from such terrible policies. The good news is that these events will lead to terrific profit opportunities, because government incompetence always does.
Long story short, trade the market in front of you, and not the market yet to be ... no matter how sure you are of your prognostications.
Chief Investment Officer
ETF Master Trader