The stock market is definitely in need of a correction/consolidation and the catalyst could be a combination of events: conflict in North Africa; the end of 2010 fourth-quarter earnings season; a generally tired market; and higher oil prices. Even though the stock market has gone up tremendously, investment risk is the same now as it was six months ago—high to very high.

We’ve got geopolitical events to deal with, already high commodity prices, low housing prices, high unemployment, and the sovereign debt issue, which is a simmering risk that could wreak havoc in currency markets. It’s a wonder that stock prices have gone up at all.

Still, business conditions for corporations remain positive and that’s the single most important piece of economic analysis that investors should be focused on. While events around the world do matter, Wall Street has always followed its own ethos, and it’s different from Main Street. That’s why you often see a rising stock market when economic news is weak.

Readers know that I’m long the stock market, although I view the current state of things as a bear market rally. Just owning the S&P 500 is good enough in this regard. If you want to be speculating for capital gains, the single best area for stock pickers remains precious metal stocks. Investing in gold has been and will continue to be a good idea for equity investors and I feel so strongly about this that I’d be a buyer right now, even though many of the best stocks in the sector have already appreciated substantially. I always prefer the buy-low-and-sell-high investment strategy, but as an investor with money to make bets, you have to roll with what the market offers. The best time to have made new gold stock picks was quite a few years ago, obviously.

I’m not worried about higher oil prices affecting domestic economic activity. It would take quite a while for high oil prices to kill this recovering economy and they would have to be well over $100.00 a barrel (WTI) for this to happen. What I am worried about are inflation and interest rates. This story is happening abroad, but not yet at home to the degree that economic activity would suffer. But the probability for a change in the interest rate cycle is increasing and this is what Wall Street is worried about. As long as the Fed says everything is fine (which doesn’t mean it’s right) and there’s no need to make any policy changes, the outlook for stocks is positive. Once the tone from the central bank changes, my view will be shifting significantly.