Stick With the Survivors

 | Nov 18, 2011 | 9:30 AM EST  | Comments
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"I'm still standing.  Yeah, yeah, yeah." --Elton John

After the market underwent more selling Thursday, those are the lyrics that kept playing over and over in my head.

I made a lot moves in my model growth portfolio Thursday, and despite some pretty serious selling in many growth names, I emerged relatively unscathed. But just because I'm still standing doesn't mean I'm feeling good about what I've seen from the market in the past two sessions -- a late-day selloff Wednesday and more intense downside action Thursday.

Headed into Thursday, four higher-volume declines for the S&P 500 since Oct. 31 had me somewhat concerned about underlying market health. The index lost another 1.7% Thursday. Volume rose again, making it five higher-volume declines for the benchmark index since Oct. 31. What were once yellow flags in the market are now red flags.

A market uptrend can put up with sporadic higher-volume declines, but when indices start to violate key support levels and market leaders start to roll over, we have reason to be concerned -- and that's what I'm seeing now.

Sure, the market will rally from time to time in coming days, but until I start to see meaningful signs of institutional buying in the market, I plan on watching mostly from the sidelines -- maybe I'll do a trade here and there, but nothing more. It's the type of market in which profits can evaporate quickly and small losses can snowball in no time. I like to swim with the market tide, not against it, and buying now would be swimming against the tide -- just too tough.

Price and volume trends in the major averages have been suspect for a while. On Thursday, the S&P 500 and NYSE closed just above their respective 50-day moving averages while the Nasdaq Composite and Nasdaq 100 closed below this support level.

My game plan from here is to assemble a list of growth names that have held up well amid the selling. A couple that come to mind are MercadoLibre (MELI) and Under Armour (UA). I'm not ready to buy them yet, but they're worth watching from here.

Based in Argentina, MercadoLibre operates an online marketplace and electronic-payment service in Latin America. On Nov. 3, the stock gapped up on strong earnings. The company reported quarterly profit of $0.60 a share, up 36% from a year earlier and $0.17 above the consensus estimate. Sales jumped 46% to $81.6 million. It's a high-multiple stock, but its valuation seems reasonable, considering its growth rate. Full-year profit is expected to rise 34% this year to $1.73 a share and 33% in 2012 to $2.30 a share.

MercadoLibre shares have shown uncanny resilience over the past two sessions. The stock is holding gains nicely, which tells me there's good support for the stock at current levels. I'd like to see it consolidate a while longer and digest recent gains. After that, a new buy point could emerge. But, so far, its price action post-breakout has been impressive.

MercadoLibre (MELI) -- Daily
Source: StockCharts.com

Under Armour is another name I'm also keeping an eye on. It had the look of a leader for a while, especially when it staged a technical breakout above $80.80 on Oct. 25, but the breakout is facing some headwind. Under Armour has come in with the broad market, but the pullback has been in light volume which is constructive. Let's see if Under Armour can hold its 50-day moving average from here. If it does, I believe it has the potential to lead again due to strong fundamentals, plus the fact that it has solid institutional backing.

Under Armour (UA) -- Daily
Source: StockCharts.com

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