"What's the news?" is the first question when we see a big move in a stock or sector. There is always some reason, valid or not. Knowing the news explanation is an important step for those who trade on fundamentals.

After months on the national stage, the debate over health care reform has reached the final act. In the next few weeks we will know whether national policy will change, and the nature of that change. Meanwhile, the health stocks have been signaling "There's news" on a regular basis.

I have noticed a profitable pattern. I am going to cast this from the bearish perspective, but in theory it could work either way. I have a few other historical examples, but let us focus on the present.

Background

Here at "A Dash" we have emphasized that we are all consumers. We are consumers of data, of analysis, and of opinion. Our principal mission is helping readers understand their role as consumers and figure out what sources and information to follow.

Background

President Obama's China visit will be a news focus for the next few days. Investors will follow developments closely for hints about trade, the dollar, implications for the U.S. economy, as well as several important challenges to international cooperation. Because China is the biggest lender to the US, the relationship is changing.

This occasion is also a good time to consider the prospects for direct Chinese investments. We identify such opportunities through our sector rotation model.

Anyone who is following the market on a daily basis is paying attention to the strength of the dollar versus other currencies. It can be confusing. While a strong dollar might seem like a good thing, there is actually an inverse market relationship with stocks -- at least in recent times.

I described the basics of the dollar debate here: Understanding the Debate on the Dollar. There are many opinions -- prescriptive, political, and descriptive. The next step is to consider some data.

A strong dollar seems patriotic. It is also meaningful to long-term purchasing power. A weaker dollar means a higher cost for foreign products, and that is inflationary for the US consumer.

This natural impulse is at odds with current equity trading. A friend asked why the market had a 200+ rally in the DJIA on Monday. My answer -- dollar weakness-- was counter-intuitive and unsatisfying, but accurate.

Let us consider this interesting question: What distinguishes the "smart money" from the average investor?

My nomination is a better understanding of risk. The individual investor is always looking backwards and focuses excessively on returns. The pros try to measure risk in many ways -- valuation, economics, or even finding the next black swan. They also implement risk control through the use of sophisticated option positions, long-short trades, or outright short positions.

Market followers love to make timing predictions. These predictions come in all time frames and flavors:

• The market has made the high for the day, and will now trade down. Or the opposite.
• This is the bottom. Or the top.
• We have seen the highs (or lows) for the year.
• Or when the Dow was at 9500, would we see 10000 before 9000?

Bold Predictions

After last week, traders may wonder if there is a glimmer of hope anywhere. The market correction expected by many pundits for months finally had a serious impact. Sentiment and expectations have shifted despite a solid earnings season. The market debate continues to focus on the economy, with each data point the subject of both careful analysis and also plenty of spin.

While we participate in the analysis of economic data, we also have a reality check. Our model-driven approach is based upon market data.

Investors and traders alike need to understand market volatility. Many market observers use volatility as a euphemism for price declines. This is completely wrong.

The astute options analyst Adam Warner (one of our featured sources), does a great job with this concept. Writing about the Market Vectors Gold Miners (GDX), he makes this important point:

With the market treading water, it is ever more difficult to find a promising sector. Each week we use our sector model to find the best ETF's and give us some insight into the overall market. Our macro look as become more negative, but there are still a few bright spots.

Our Approach

When there has been a nice market rebound, we should expect to hear the familiar refrain: It is a stock picker's market.

This wise-sounding expression means that it is no longer good enough to "buy the market" whether through index funds or market stocks. It is time for some actual analysis.

For my long-term investors there is nothing more important than corporate earnings, especially when compared to alternative investments.

Here are some key issues that I follow:

Despite continuing skepticism, the market continues to move higher during what many argued was the season of danger. Those following "calendar rules" advised investors to sell in May, to sell in September, and to sell in October. In a couple of weeks we will be out of the danger period. It will be interesting to see if the calendar adherents stick to their method. If they do, we should see fresh buy recommendations from some unlikely sources.

Our indicators are only mildly bullish, but there are specific sectors worth consideration. Emerging market ETF's make up most of the portfolio, but there are also other choices.

Valued commenter Mike C. asks for a change of pace from my regular topics and a focus on more specific stock picking. He notes that I have said several times that there are plenty of opportunities. So what are they?

This is a thoughtful question, so let me start down the path to a complete answer. I cannot get there in one article, but this will be a start.

Last March, at the market bottom, we wrote a three-part series on why a bottom would not be recognized by most investors.

Investors would be misled on valuation. The debate is playing out just as we forecast.

We examine markets with different time frames. Our most successful investor program takes a long view, but we also look to shorter term signals for trading programs. This week we see high risk in most sectors, but an opportunity for the careful trader to stay with the rally. This eclectic strategy has been very effective in recent months.

There is plenty of skepticism. That means that most missed last week's big move. A disciplined approach that looks for opportunity can help with this challenge.