Sometimes, it’s hard to makes sense of price action in individual stocks and the major averages.
Consider: Michael Kors (KORS) beat the consensus revenue estimate by nearly $100 million on Feb. 12 and has a failed breakout to show for it.
Salesforce.com (CRM) broke below its 50-day moving average in heavy volume earlier this week and then rocketed 5% in after-hours trading Thursday on strong earnings.
Monster Beverage (MSNT) missed on the bottom line and top line when it reported earnings Wednesday after the close and shares popped 1.7% on the results.
And when it comes to the major averages, 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 they’re ready to stage fresh upside breakouts. It’s not a convincing case yet, but keep in mind that today marks the fourth day of a rally attempt for the major averages. A big percentage gain in higher volume from here would signal a new uptrend.
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. That’s what makes it difficult right now. Neither side has a distinct edge. New long positions can sour quickly. So can short positions.
On the one hand, increasing signs of institutional selling in the market raises the odds for more downside. But on the other hand, the weekly charts of the three major averages look more bullish than bearish at this point.
Without an edge, I’m content to sit tight and wait for a trend to emerge — up or down. From my perspective, recent distribution in the market — and stalling action on Thursday — raises 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 out 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.
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