I’m hearing a lot of concern lately that stocks are overbought, and that a serious correction of 5% to 15% is overdue. Most of this kind of talk comes from people who have not been involved in the market all year, and are looking at the train whistling past them at the platform and wondering if it will ever stop long enough for a chance to hop on. Oddly, they would actually like for the train to slam on its breaks hard enough to send riders flying so that they can say, “I told you so.”

I was reminded of this vividly when my wife told me that one of her friends saw a Facebook posting by a retired executive at a major Seattle software firm that said he expected a crash, and was therefore pulling all of his money out of stocks. I don’t normally pay much attention to anecdotal evidence, but this gentleman’s willingness to stick his neck out in public was, to me, indicative of the fairly bearish tone by the intelligentsia.

Click to EnlargeThere are a ton of sentiment indicators around, ranging from the amount of margin debt to the number of American Association of Individual Investors members who are bullish or bearish. I don’t put much energy into studying any of them because what people think of the entire market is not usually applicable to trading individual stocks. There are dozens of instances in which the entire market has been down but certain sectors have performed extremely well.

One of the sectors I’m watching right now is commodities — steel in particular.

Gerdau USA (GGB) is a Brazilian steelmaker that has gradually traded higher since the middle of last month. It’s just jumped up from the  flat spot you can see in the chart above, and now I anticipate it could go even higher than its Keltner channel’s upper bound.

Jon Markman operates the investment firm Markman Capital Insights. He also writes a daily trading newsletter, Trader’s Advantage, and CounterPoint Options, a service geared towards helping individual traders make steady, consistent profits with the VIX. . Check out his Top Stock for 2012 here.

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