U.S. major averages shrugged off news Thursday that the euro zone economy contracted by 0.6% in the fourth quarter, marking the third straight quarter of contraction.
Four months ago, if the market got news of worse-than-expected GDP growth in the euro zone, it would’ve sold off in spades. But times are different now. We are not in a market under massive distribution. We are in a market that’s showing very little in the way of sell signals. They might come soon but for now, distribution days, or higher-volume declines, remain fairly well contained in the major averages. Headed into Friday, the S&P 500 showed just two higher-volume declines in recent weeks. That’s just not enough to derail a rally.
Thursday was yet another resilient performance — yet another indication that this market’s not ready to go down yet.
I’m encouraged by the fact that my growth screens are also showing little in the way of sell signals. The vast majority of leading growth stocks I follow are holding up just fine. Believe me, I’m not chomping at the bit to put new money to work here, but I’m willing to give my strongest performers in the Ultimate Growth Stocks model portfolio more room to work.
For now, I have my eyes on the 20-day moving averages for the Dow (13,890), S&P 500 (1,505) and Nasdaq Composite (3,161). If I see a meaningful break below this near-term support in heavy volume, it will be my cue to start trimming positions. A break below the 20-day line for each index could easily bring a trip down to the 50-day moving averages into play. Believe it or not, a visit to the 50-day moving average for each index would only be a pullback of about 3%-4% from Thursday’s close — pretty tame considering that the S&P is up about 13% from its mid-November low.
[Editor’s note: Click here for more info on Shreve’s Ultimate Growth stocks portfolio.]
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