China’s ADRs have taken a beating the past two days as Libya’s turmoil sent fuel prices soaring. How is that any different from, say, French or Japanese stocks? Or the U.S. market, where some of the most rock-solid leaders have dived sharply? After all, fuel prices are soaring for everybody.

The glaring difference lies in the countries’ inflation rates, and the central banks’ monetary policies. In the U.S., the Bernanke-led Fed seems dead-set against any interest rate hikes for the near future. Still worried about a sluggish recovery from an awful economic mess, the Fed is doing all it can to boost the economy. It has embraced ZIRP, Zero Interest-Rate Policy, and soaring oil prices don’t seem likely to derail that plan.

The People’s Bank of China, in contrast, must deal with a nasty inflation problem. Driven by painful hikes in food prices, the PBOC has been raising interest rates and restricting the supply of credit. Of course, the downside to this war on inflation is economic growth. Some slowing in China’s
double-digit GDP gains is a near certainty. Investors must be worrying if these moves will send the emerging-market Goliath into a recession.

Add to this picture screaming oil prices, and the inflation that must result. Factories’ energy costs will rise. Workers must demand higher wages to offset their own surging fuel expenses as well as the higher prices for all manner of goods.

While bulls always welcome big price gains, Friday's action didn't look so strong under the surface. Lower volume suggested that funds weren't fully participating. And action among some leaders involved negative reversals and stalling.

Stalling involves heavy volume without price progress. It points to funds selling into strength.

The uptrend remains under pressure. The market has notched four days of fast-trade selling in the past 12 sessions.

How should individual investors react? Let the uptrend prove itself before you buy aggressively. Defense should be No. 1. You don't have to dump stocks en masse, but lean on the side of protecting your capital.

With the uptrend that began in March 2009 near the two-year mark, bear in mind that historically the market has a tougher time making gains after the first two years of a bull market following a major decline.

Even if you regard this as an abnormal bull market, it's prudent to keep your expectations in check. That can be a struggle. It's only natural after big gains in 2009 and 2010 to become bold.

Erring on the side of caution is wise after the big money has been made, even if you weren't the one making the big money.