Sometimes it's hard to makes sense of price action in individual stocks and the major averages. Consider, for instance, that Michael Kors (KORS) beat the consensus revenue estimate by nearly $100 million in mid-February -- and has only a failed breakout to show for it. Meanwhile, last week Monster Beverage (MSNT) reported below-target top and bottom lines, and shares popped 1.7% on the results.
When it comes to broad market, well, after three unequivocal days of distribution on Feb. 20, 21 and 25, the Dow, S&P 500 and Nasdaq Composite are trying to make a case that they're ready to stage fresh upside breakouts. It's not a convincing case yet, but keep in mind that Friday marked the fourth day of a rally attempt for the major averages. A big percentage gain in higher volume from here would tell me that buyers have truly regained control.
The market is as deviant and counterintuitive as ever. The bull case isn't a bad one, but the bear case holds water as well. Neither side has a distinct edge -- and that's what makes this environment difficult. New long positions can sour quickly. So can short positions.
The one thing the market has going for it is bullish technical setups in the major averages. Yes, the market is showing distribution, but the S&P 500 chart below shows several tight weekly closes in a row and supporting action at the 10-week moving average. This doesn't look like an index poised to roll over.
Still, without an edge, I'm content to sit tight and wait for a trend to emerge, whether up or down. We've recently seen higher-volume declines, lower-volume gains and increased volatility -- and, from my perspective, that raise the odds for more downside.
But markets often do what's least expected. That's why I'm still holding on to three long positions in the Ultimate Growth Stocks model portfolio. We'll look to increase our long exposure if major averages follow through with conviction, and we'll look for short opportunities if indices continue to sell off in higher volume and rally in lower volume.
