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Focus on Individual Stocks, Not Misleading Indexes

Real Money's James “Rev Shark” Deporre advocates letting individual stocks dictate your market exposure in this current environment.

Markets, as measured by major indexes, have been surging to records for weeks now, but that can be a distraction.

"In an expanding stock market, the smart trader is the one picking stocks – and not leaning into index timing," Real Money's James "Rev Shark" Deporre wrote recently.  

Deporre  advocates letting individual stocks dictate your market exposure right now.

“For over a week, the battle between overbought technical conditions and strong momentum has been raging,” Deporre said.  “The momentum bulls have been winning the battle, but there are some signs of fatigue. Even most bulls would admit that it would be healthy for the indexes to rest at this point. However, quite often, what is most obvious doesn't easily occur.”

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What adds complexity to the market environment is that it’s been primarily a stock-picking market rather than an index-driven market.

“A few big-caps like Tesla  (TSLA) - Get Tesla Inc Report have helped to feed the narrative of a wildly extended market, but many individual stocks are not in bad shape technically,” Rev Shark noted. “The Russell 2000 ETF  (IWM) - Get iShares Russell 2000 ETF Report broke out of a 10-month-long base just last week and looks quite different technically than the S&P 500 or Nasdaq, which have had a slew of new highs in the last few months.”

Over the past few weeks, Deporre has been pounding the theme that focusing on individual stocks and avoiding predictions on indexes is the way to go. “The longer I trade, the less I worry about the indexes, and the more I focus on individual stocks,” he said. “There is almost always something that is offering good opportunities.”

Good examples of how the indexes can mislead are sectors such as cannabis, bitcoin mining, semiconductors, and select SPACs, which have been offering exceptional opportunities lately. “The indexes have no real impact on what is going on with those groups and will mislead you if you allow that,” he added.

Consequently, a good trader’s job right now is to stay focused on individual positions and let them determine your overall market exposure. “Trying to time the indexes is not a productive approach to this market,” Rev Shark said.

Get more trading strategies and investing insights from the contributors on Real Money.