We had two primary themes today. First was the continuation of the "inflation" trade that began yesterday on the Fed's announcement it is buying Treasury debt. That lit a fire under gold, oil, coal, natural gas and various commodities. There was a little late fade in the energy plays, but precious metals finished strong.
The second theme we saw today was profit-taking in the groups that have lead the recent bounce, particularly banks, insurance companies and various financials. Retailers, semiconductors, pharmaceuticals and medical stocks also saw some pullbacks but it was the financials that put the most pressure on the major indices today.
The primary question on my mind now is whether the inflation trade can gain further momentum. I'm not sure it is particularly healthy for the overall market but leadership in energy and commodities tends to provide good trading opportunities.
Out of this big V-shaped move this market has seen over the past two weeks, we should start seeing rotation into the winners and losers. So much of the market action has been generated by news about the latest governmental proposal. If we are going to have a better market, individual stock-picking should start to matter much more than it has.
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