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These companies will show their profit potential by the way they trade from day to day. Right now, many of these stocks are pulling back to support or consolidating near last week's highs. Both movements are bullish, as long as volume dries up while these corrections unfold.

And what about oil stocks in the weeks ahead? As outlined last week, I believe crude oil is headed into a seasonal decline following the climatic rally above $70. Oil and gas equities should be a stock picker's market during this intermediate correction.

Beyond oil and gas, focus on short-term plays in long-term favorites. For example, buy a basket of chip stocks with trailing stops that take opportunistic profits on the first selloff day. In other words, stay cynical and keep high cash levels between quick forays into the market.

The same advice goes for most growth sectors. These stocks carry high short interest that's being tapped heavily during this rally. It's the reason the group should outperform until repeated failure discourages short-selling. It's doubtful that will take long.

Short-term plays require realistic reward targets. If you've been playing for 2 to 3 points this summer, take a point out of the position and jump to the sidelines as quickly as you can. Then re-evaluate and re-enter after a downswing hits substantial support.

Finally, watch the utility stocks closely. If our economy goes downhill, this sector will sell off sharply from its recent highs. The same advice applies to classic defensive sectors, such as food and consumer nondurables. Strong rotation into these issues exposes an institutional conviction that there won't be a bull market down the road.

P.S. from TheStreet.com Editor-in-Chief, Dave Morrow:
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