Some have argued that the market's recent pullback is a sign of greater underlying problems. Others have argued that the dip is just a healthy (albeit volatile) temporary correction that was long overdue. Both sides have made rational arguments, but let me add one more as I take the side of the "short-term pullback" camp: the stocks that have held up and even thrived in the midst of the bearish headwind aren't stocks that should be desirable if we were really slipping back into a recession.

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Oh, that's not to say the usual defensive arenas haven't made their usual advances. For instance, the SPDR Gold ETF (NYSE:GLD) reached an all-time high this week, as did the commodity itself. Silver and the iShares Silver ETF (NYSE:SLV) have been pretty hot as well.

That's speculation from traders though. When you drill down into the recent winning and losing stocks - the realm of the average long-term investor - we see some relative strength suggesting that 'Joe Investor' is still banking on an economic rebound; he may well end up creating that self-fulfilling prophecy.

Defense Schmefense
Take a look at the market's best-performing industries over the last two and a half weeks (minus REITS and precious metals), and see if you spot the still-aggressive mentality.

Industry Index 1-Week % Chg (since 05/07) 2-Week % Chg (since 04/30) 3-Week % Chg (since 04/23)
S&P 1500 Home Furnishings Index 9.16% -2.74% -3.85%
S&P 1500 Household Appliances Index 8.25% -2.21% -0.41%
S&P 1500 Leisure Facilities Index 7.27% 1.72% -3.28%
S&P 1500 Leisure Products Index 6.96% 1.20% -1.23%
S&P 1500 Department Stores Index 6.54% 1.05% -5.49%
S&P 1500 Index 4.23% -2.63% -5.16%

Surprised? I'm not - the consumer discretionary sector has been unstoppable as of late. It's strong enough to be your best chance at resisting a marketwide pullback, as the above numbers show.

What the Heck's a "Leisure Facility"?
I don't know why Standard & Poor's uses the term to describe businesses that own and operate amusement parks, casinos, resorts and sporting events. Nevertheless, that's what they are.

And, it's a trend I believe in, though I don't think I'd follow the crowd and dive into an obvious name like Wynn Resorts (NASDAQ:WYNN) or Las Vegas Sands (NYSE:LVS). Rather, I'd look a little bit further down the size scale for something along the lines of gym and spa owner Life Time Fitness Inc. (NYSE:LTM). The company has beat earnings estimates in each of its last four quarters, so I don't doubt the forward-looking P/E ratio (2011) of 16.5.

Leisure Products
The term 'leisure product' can be just as ambiguous, though deliberately so. It can include everything from toys to cameras to electronic gizmos.

Toymaker Hasbro (NYSE:HAS) and boat manufacturer Brunswick (NYSE:BC) are a couple of high-profile examples of such companies, and each has done more than its part in contributing to the recent strength. Again though, something a little more obscure like ATV manufacturer Polaris Industries (NYSE:PII) may be preferable. Brunswick, in comparison, isn't even expected to turn a profit in 2010. Like Life Time Fitness, Polaris has topped earnings estimates for four straight quarters, and is packing plenty of value into the stock's price.

All the other industries that walloped the broad market's recent performance are self-explanatory.

Bottom Line
If investors were really certain that things were going to get worse rather than better over the remainder of 2010, they wouldn't be so collectively optimistic about sales of golf clubs, four-wheelers and casino excursions.

So why the apparent panic that the pullback over last two weeks means so much more than just a dip in the grand scheme of things? Great question. It actually looks like something along the lines of "do as I say, not as I do." because the truth is, investors have bought and stuck with consumer discretionary names better than stocks from any other sector. And as they say, money talks. (Find out how these securities can protect you from a market bust. Read Guard Your Portfolio With Defensive Stocks.)

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