What else can we do with that money?

That's the question we always want to ask ourselves.

I get asked all the time, "Hey JC, I own this stock, it's down x amount and I'm not sure what to do?". Man if I had a bitcoin for every time I got asked that one.

To me the answer is very simple. If you woke up that morning and you could do anything you wanted with that money, anywhere in the world, with any asset class, is that stock what you would buy?

If the answer is no, then you know your answer. Go buy whatever you want to buy. Transaction costs are nothing these days, so the pennies on that are no excuse to sit in something costing you way more. 

Two weeks ago I laid out what it would take for us to start getting more defensive in this market and not just blindly buying any and all dips. The thesis was that if certain things happened, they would not be consistent with an environment where we want to be as aggressive, and a more neutral approach would be best. Some of these developments have taken place and the impact has been seen so far in October.

Let's take another look.

Stocks, Commodities, Currencies, this long post will cover all of them as we discuss market conditions heading into year end.

There are a lot of interesting developments working through the markets these days. Whether it's the relentless sector rotation underneath the surface or the divergences between small and large-cap stocks, there is no shortage of topics to discuss about the current environment. I have been in the camp that a breakdown in Bonds to new multi-year lows would likely be accompanied by a lower yen and higher stock and commodities prices. Through last week that strategy has worked really well.

Moving forward, however, how does this face-ripper in rates impact U.S. stocks? Is the relative strength in financials this week a positive sign for equities? Or are they just getting a sympathy bid because of rates? Are Semiconductors finally going to break out above their epic 2000 highs, which they've been flirting with all year? What about Gold and Crude Oil? How do they fit in?

This morning I was on the Benzinga Premarket Prep Show discussing what I felt are the most important topics in the markets right now. Here is the interview in full:

There is a lot of noise being made this week about potential divergences in U.S. Stock markets. The one thing that gets lost in the shuffle is that just because asset A is rising and asset B is not keeping up, that asset A needs to correct and come down to meet asset B. Rarely does it get mentioned that asset B can just get some rotation and catch up to the relative strength that asset A is showing. In fact, during bull markets (which we're in, not sure if you heard) the latter is a perfectly normal occurrence.

Today we're going to take a look at a more macro correlation that I think we need to be watching. We're talking specifically about the long-term behavior patterns of the S&P500 in America and the DAX in Germany. Going back many decades, these two indexes really move in sync.

Small and mid-caps have been hit hard since late August, so rather than look for short opportunities after a large move, we're looking for potential counter-trend trades on the long side. Today's candidate is PTC India.

I have to give credit to our Intermarket Analysis work for a lot of our success over the years. This "Cross-Asset" perspective is incredibly valuable, particularly when it comes to identifying and staying with important trends. As a supplement to our Technical work in U.S. Stocks and Indexes, we incorporate a variety of Intermarket relationships to help us formulate a thesis. These include Bonds, Commodities and Currencies.

When it comes to safety, I don't care what people believe is a safe haven, I only care how the market reacts when it needs to go safe. When markets stressed and volatility rises, stocks fall in price and US Treasury Bonds and Japanese Yen reap the benefits.  When did Yen and Bonds get strong? Summer of 2015 just as the S&P500 was topping out. When did Yen and Bonds peak? When stocks got going several months before the 2016 elections. Both of these are near their 52-week lows, which makes perfect sense with Stocks at all-time highs.

So, the way I see it, we're most likely going to see Yen and Bond strength if stocks really sell off this quarter. The other side of that argument is that stocks are likely to do well in an environment...

The one thing we do know is that stocks are not in a downtrend. New all-time highs are consistent with a stock market environment where prices are rising. We saw new all-time monthly closing highs in most of the major U.S. Stock Indexes last week. The question is more about whether or not we're starting to see this trend change or deteriorate in any way. The short answer is no. We do not see enough evidence to support a bearish approach towards equities, quite the opposite in fact.

Here's what I'm seeing:

Mid and small-caps have been hit hard over the last month, so I wanted to do a quick update post on how we should be approaching these indexes over the short-term.

September has been a month where the market's experienced some sharp moves to the downside, so I want to use this post to review what we spoke about last month and provides some context around any changes that have occurred since then.

Kim Sokoloff is a trader's trader. Whenever I see her she is always telling me about her trading day, what she was buying and what she was selling. I have a huge appreciation for the passion she brings to the markets on a daily basis. We all have different time horizons, some longer-term and some shorter-term. Kim is concerned with what stocks are doing over a a few days. For her, "long-term" is only a couple of weeks. In this episode, Kim walks us through her morning routine and thought process throughout the trading day. We've had analysts, money managers and traders on the podcast, but in this conversation we really dive deep into what it's like trading every day from an apartment in lower Manhattan. I really enjoyed this discussion with a very active swing trader and practicing technician.

There's always a tell. Before the most recent rally we've seen in U.S. stocks since August, Aerospace & Defense stocks were breaking out. It was hard to be bearish equities with this A&D group, an important part of the Industrials sector, and a leader among leaders, coming out of an 8-month base to new all-time highs. Also, this came within the context of a tremendous uptrend, so an upside resolution was perfectly normal. That breakout was telling for stocks as an asset class. Today I think it's Technology. What this sector does here should tell us a lot about this market.

After the new weightings, Technology is going to represent 20% of the S&P500, which is still a large chunk, despite being cut from 26% of the S&P500 pre-adjustments. It's funny, strong markets do splits, not reverse splits. I'll take this as a positive for Tech. And if it's not, then I think we have a problem. That's what we're looking at here today.

To be clear, I believe the higher probability...