How to Chase the Market Rally

They say the best athletes make it look easy; their swing so fluid, their sight so sharp, their hands so certain. Whatever the case may be, their performance is as instinctive as it is smooth. And so it is with the best investors, who have the consistency and confidence to play their game, and not be enticed into something else.

For Gene Peroni, portfolio manager at Advisors Asset Management, his game is simple: "Identify quality companies, with good earnings growth, good cash flow, and in some cases nice dividends", that are technically "trending higher, not ones that are still in troughs."

"Once we've identified those stocks...I think the best tack is to buy and hold through the short-term volatility," Peroni explains in the attached video.

While many investors may fear that they have missed the move of the past week or so, this Philadelphia-based fund manager sees higher levels ahead

"It would seem like you were chasing the markets," Peroni says. "But when you really compare that with the upside potential before the end of the cycle -- I believe it's above 16,000 (on the Dow Jones Industrial Avg.) over the next several years -- then the risk to reward, even at these levels, remains very attractive. For stocks individually, it's an even better outlook."

Cyclicals, and what he calls the "market leaders", are his favorites right now particularly Transportation plays like airlines, truckers, shippers as well as rails "right down the line." Kansas City Southern (KSU) being one of his favorites.

In addition, if you combine his expectation that there will be a migration into small and midcap names, with his affinity for industrials, aerospace and defense names like TransDigm (TDG) make the cut over their large cap peers.

And finally, Peroni is getting long energy, which he says has good sub-sector underlying strength in groups like oil and gas drillers, oil services and oil technology. Here, he singles out Concho Resources (CXO) as a "leadership stock" that's worth a look.

What do you think? Is it time to dive in or cash out?

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