The irrationality of the stock market was on full display in November, both helping and hurting our portfolio of rationally derived trading positions. I love seeing portfolio holdings like Dick’s Sporting Goods (NYSE: DKS) and Target (NYSE: TGT) jump after proving the retail naysayers wrong, but I loathe watching Western Digital (NSDQ: WDC) fall despite its already heavily discounted price.

The good news (for us) is that we may be witnessing the early stages of a return to rationality, but the bad news is the process will most likely be messy and protracted. At its heart is the inherent conflict between overvalued momentum stocks that have pushed the major stock market indexes to record highs while value stocks have lagged far behind.

That conflict is perhaps best illustrated by the poster child for momentum stocks, Amazon.com (NSDQ: AMZN) which has appreciated 50% this year. Despite the fact that it pays no dividend and ekes a profit margin of barely 1%, investors can’t seem to get enough of it due to its rapidly growing top-line revenue stream.

At the other end of the spectrum is a company like Target, which pays a dividend yield of 4.4% and has a profit margin more than three times that of Amazon but is growing its total revenue at only a modest pace. Until last week, investors could not run away from it fast enough.

However, something interesting, and perhaps profound, happened this week. Turns out, some people still do shop at Target (and Walmart, Dick’s, Kohl’s, etc.) and some of them even buy ONLINE at those stores. Not a huge shift, mind you, but enough to call into question the presumption that there is nothing they can do to avoid being steamrolled by Amazon.

Of course, one week does not prove anything, but if it keeps up through December then a lot of investors may revert to emphasizing profits over sales when valuing stocks in 2018. And if that happens, it won’t just be Amazon and the retail sector that is affected.

Since growth stocks are priced based on earnings assumptions extrapolated many years into the future, even a modest decrease in the assumed top-line revenue growth rate could have a big impact on their current value. If that occurs, then the outcome may be a market-wide rotation out of growth and into value, with only a mild correction as the net result.

That’s the best case scenario for our Rapid Profits Matrix, which relies on a higher level of rationality than what we have experienced so far this year. It’s not going to happen all at once, but if the retailers can prove that this week wasn’t a fluke then it may start happening sooner rather than later.

NOTE:  A recurring point of confusion has been my use of stop-loss limits in managing the portfolio. I enforce them only at a stock’s closing price, and on a dividend-adjusted basis. For that reason, although yesterday Western-Digital (WDC) closed beneath the $79 stop-loss price indicated in the portfolio table, it paid a dividend of 50 cents after this position was opened so I will enforce that limit if/when WDC closes beneath $78.50, which is less than yesterday’s closing price of $78.86. That said, I realize my process for using stop-loss orders to manage the portfolio is not actionable with most brokers so I am evaluating alternative methodologies to use in 2018 that will make it easier for you to mimic the actions being taken in the portfolio.