It’s a Quagmire Out There

Continuing with my “quagmire” theme, this market remains indecisive and in flux. While crude oil may be the root cause of this choppiness, the recent trend-less nature of the market over the past few weeks should not be a huge surprise given the amount of ground the market has covered since last fall. After all, periods of expansion in the market are naturally followed by periods of compression. To be sure, the key issue is trying to discern whether we are at a major inflection point, or whether this is simply a minor pause in a bull market before we head higher. There can be no doubt that the bulls have been jaw-droppingy resilient, especially thus far in 2011. At the same time, I am not seeing as many high probability long setups ripe for the taking like I did during last November’s correction.

Hence, as much as I’d like to be “Action Jackson” and gamble it up here, protecting capital is still the top priority. All positions should be watched closely, with very little patience for losers. Indeed, we could easily see a few more days like today. In order for the bulls to get going again, my working thesis has been that we needed the intense price swings of the past few days to abate. Thus far today, we have a nine point range in the S&P 500, which is less volatile than the 20+ ranges we have seen of late.

At the same time, the Nasdaq Composite Index continues to dance along the 50 day moving average, and we know that the more a key support level is probed, the more likely it is to eventually give way. The battle lines are starting to be defined here, as bulls want the action to continue to quiet down as we near the apex of the symmetrical triangle shown below, while bears are looking to finally land a body blow in the form of convincingly breaching the 50 day moving average.

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