My market bias is primarily a function of the individual stocks that I watch. When I see a lot of setups that I want to buy, I'm bullish -- but when I can't find entries that I like, I'm bearish. I do consider the indices, but they often fail to reflect what's really going on under the surface.
What I've been seeing under the surface lately has been a rotational action that's allowed the indices to hold up well. We've seen various groups (biotechnology, financials, retail, oil, precious metals, mining, etc.) all lead at various times since the S&P 500 hit its February low.
Unfortunately, we seem to be running out of stocks to step up and take the lead. One interesting factor I've noticed recently has been healthy speculation in small-caps and lower-priced stocks. This has kept breadth quite strong for a while, but now I'm seeing this phenomenon weaken.
In fact, I'm seeing almost no low-priced stocks on my key scans this morning. The only things that are showing up are inverse ETFs and things like the VelocityShares Daily 2x VIX ST ETN (TVIX).
When buying opportunities dry up, it doesn't take a genius to figure out what to do. You simply don't buy stocks and you tighten up your stops.
My goal is to keep my accounts as close to highs as possible, and that's what I focus on when we have action like this. It's a balancing act between sticking with "good" names and locking in profits, but I tend to err on the side of selling.
We have no signs of dip buying so far this morning, and breadth is running worse than 4-to-1 negative. Oil is getting hit hard, and all of stocks' recent leaders are seeing profit-taking.
As such, I've sold down some recent winners like Mitek Systems (MITK), DRD Gold Ltd. (DRD) and Five9 (FIVN), and I'm positioned my portfolio for a further downside. That often results in being underinvested when we turn suddenly, but I see little choice at this point.