Wednesday, May 26, 2010

State of the Market - 5/26/10

A day after another bullish reversal, the market crapped out again today.   It was up nicely in the morning and showed good follow-through from yesterday's possible short-term bottom, but that bullish action didn't last long.   Around 11:00, the markets started to drift lower.   They moved sideways through the lunch hour, but around 2:00 the selling picked up again and the market sold off pretty hard for the final two hours of the session, giving the market decent losses on a day when it was up nicely early on.   Not bullish action at all.  Volume was also much lower today than yesterday.

Technically a few of the indices (namely the Nasdaq and Russell 2000) hit their 9 day moving averages today and reversed, and that is a sign of how strong this current downtrend is that we are in right now.   Every little bounce is sold and the bulls can't seem to put a few hours together of solid gains let alone a few days.  It is still possible a very choppy, volatile bottom is being put in here, but right now most of the action seems to point to futher downside at some point in the near future. 

Chart from Telechart, Courtesy of Worden Brothers, Inc.

I didn't make any moves today and remain in cash, where I am perfectly happy to be.   This is not a market to swing trade in - it just isn't.   I don't know how anyone could feel confident holding a short or long position overnight with the volatility and gaps we are seeing,   One would hope that the volatility settles down a bit as time passes, but with summer fast approaching (which means less and less volume) it is possible that the volatility actually increases as we move forward.   That's great for day-traders but not so good for someone in my position.  

It is what it is, however, and there is not much I can do about it.   Part of being a trader is knowing when the deck is stacked against you and no opportunities exist.   We are still in one of those times and although it is boring, it pays to be patient and not force action that isn't there.   I'm sounding like a broken record, I know, but it is true.   Take care and be careful out there.

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