Happy hump-day, friends and fellow traders. As we expected, stocks bounced firmly on Wednesday, ending a five-day losing streak that pulled the S&P 500 lower to the tune of 4.2%. As we warned you in Tuesday's newsletter though, one good day after five horrible days for the market doesn't mean the short-term downtrend has been snapped. We'll give you our usual reality check on the broad market below. There are actually a handful of items we need to cross off our "to do" list first, like showing you the only stable, trustworthy group of stocks out there right now. Time to Think Outside the Box If you've been reading the SCN newsletter for at least a month, then you already know we have some bigger-picture valuation concerns about the market. Oh, we've also acknowledged several times how valuations don't matter in the short run (which has been proven repeatedly, via the market's perpetual moves to new highs despite stress-inducing P/E levels), but eventually, stocks do reflect earnings results and growth prospects. It's a vicious catch-22 in the meantime. Traders don't want to miss the rally everyone seems convinced is going to unfurl all year long, yet the risks of being heavily invested right now are about as great as they've ever been in the midst of a bull market. What's a trader to do? Don't invest in the stock market. Find a market that's decidedly distinct from the stock market, and moves independently of equities. A few of you may already know what I'm about to say since we touched on the subject once already.... in December. But, it bears repeating now - this would be a great time to wade into some real estate instruments, via REITs. I'll let you know up front I'm not a big REIT guy, usually opting for stocks since I've got the most perspective with them. Opportunity is opportunity, though, and more important to me right now, the risks associated with stocks outweigh the rewards. Until that situation passes, I'm inclined to mitigate my portfolio's risk by upping my allocation in REITs. You may recall we explicitly recommended office and industrial REITs to you back on December 2nd, when the Dow Jones Office and Industrial REIT Index (DJUSIO) was trading at 87.78. It's at 92.21 now, having broken out of a converging wedge pattern by punching through the upper edge of that shape. I know it's only a 5% gain, but that's a 5% gain in a little over a month, and the market's actually down 2% for that period. Take a look. While you have to like the momentum of the industrial and office REIT space, we'd be the first to say, as a group, they do look more than a little overbought. If you're looking for something that looks a little less overbought and closer to the beginning of a rally than the end of it, take a look at the Dow Jones Diversified REIT Index (DJUSDT). Unlike most of the other REIT indices, the DJUSDT isn't looking overextended. In fact, it looks like it's just now pushing off the lower edge of a long-term bullish channel, and could be gearing up for a cup-and-handle-esque breakout. Here's the tricky part about the Dow Jones Diversified REIT Index - there's no corresponding ETF, and other REITs and REIT ETFS all look overextended at this time. This is a case where you have to think about the spirit of the index rather than the index itself, and maybe even dive into some of the index's individual components. I suspect the reason this particular chart looks as inviting as it does at this time stems from the fact that is owns several small cap REITs most funds ignore, and it owns more than a few mortgage REITs too. It also consists of some plain ol' obscure stuff that so often ends up doing quite well. If you need some help getting started on that search, the BigCharts piece of the MarketWatch site lists all the index's holdings. Just some food for thought if you're nervous about what may be in store for stocks in early 2015. Not Impressed Yeah, yeah... stocks made a gain today. It wasn't a game-changer though - the current downtrend is still intact. The bears just needed to take a day off, so they did. We're still well away from getting back into bullish mode. Let's just start at the beginning, shall we? I'm going to temporarily switch back to the S&P 500 chart here, as I think it's easier to see today's relevant details on it rather than the NASDAQ Composite's chart at this time. Don't misread that, however. I still believe the NASDAQ is the more telling of the two right now. Anyway, as you can see on our chart of the S&P 500, the index used the 100-day moving average line as a pushoff point today. Even so, the index didn't clear the critical 2043 area where the 20-day and 50-day moving average lines are about to converge. The buying volume behind today's gain was also pretty weak. Translation: We're not impressed. We're not ruling out any possibilities! Heck, we'll never do that, just because we know the market could do anything at any time, with or without warning. From a risk/reward perspective though, we just see too much likelihood of continued downside to go betting on a bounce just yet. A move above 2043 would force us to rethink our pessimism, while a move below the 100-day moving average line at 2004 would bolster the bearish argument. Anything in between, and stocks basically remain caught between a rock and a hard place. That's it. End of story. We know we usually have more to say, but we're not interested in pontificating without a purpose. There's a time and a place to make long-term and short-term calls, but this isn't the time. Give us a few more days, then it'll be the time. The advent of earnings season next week could be the catalyst we need there. Speaking of earnings, we've yet to do a preview for Q4's earnings season, but we've got one in the cards for later this week. We have to get to it soon, as Alcoa (AA) gets the party started on Monday. Threading the Needle, So to Speak I don't know how many of you saw Nuveen Asset Management's Bob Doll's 10 predictions for 2015, but as usual, they were interesting, and as is often the case, I agree with most of them. Two of them, however, really stuck out to me today because they jibe with something I've been saying for a while now. Those two of Doll's ten 2015 predictions are: 6. U.S. equities enjoy another good yet volatile year, as corporate earnings and the U.S. dollar rise. 7. The technology, health care and telecom sectors outperform utilities, energy and materials. (Stock selection typically becomes increasingly important as a bull market matures, and we do not expect this one to be an exception.) Combining his sixth and seventh guess, I think we can surmise 2015 shouldn't change whether or not you invest [you should remain in the market], but it may require you to alter how you invest. Those are the words I've been using for a while anyway, and Bob Doll's thinking underscored the idea. Saying we need to be more precise stock pickers is one thing. Actually doing so (successfully) is another. If you'd like some help making the right stocks picks at the right time this year, then you can't go wrong by becoming a member of the Elite Opportunity newsletter. Case in point: John Monroe and his team issued a new entry on a social networking name today. We know much of what you just read suggests this isn't the time or place to bother taking on new positions. But, that's the point - while the market as a whole might be iffy, this particular stock pick is very much a "right time, right place" kind of pick that's based on the kind of pickiness Doll was describing. It's not too late to learn what this new stock pick is; your membership in the Elite Opportunity club gives you access to all the EO newsletter archives. More than that, your subscription means you get all the rest of Monroe's precisely-timed stock picks in real time in an environment where choppiness and volatility would otherwise prevail. Your portfolio will thank you for it. You don't even have to sign up for very long to see if you like it. Take a three-month subscription. See what it's all about, and see just how good the Elite Opportunity is. I'm pretty sure you'll want to renew your subscription at the end of the three months. Here's how to register, or just cut and paste this link: https://www.smallcapnetwork.com/pages/SCNEO/v1/