Patience Will Pay…Eventually

MARKET WRAP UP 05/24/10

After the first several hours of a choppy and low volume trading session, the sellers eventually pushed us lower, yet again, into the closing bell. With the S&P 500 closing down 1.29% to 1073, we are witnessing a market that is frustrating traders across the board.  Not only are we too technically damaged to find decent long setups to ride for several days, weeks or months, but we are also currently too oversold to find good short selling entry points.

The updated and annotated daily chart of the S&P 500 should illustrate these points, seen below.

The good news, for those of you that have been holding high levels of cash, is that the number of traders trying to declare a bottom dwindles each day that we see another heartbreaking selloff into the close.  Thus, the market usually finds a bottom when the dip buyers eventually give up their shtick, out of frustration.  Danny’s latest post cogently summarizes the problem with being an aggressive buyer when the market corrects.

There are a few glimmers of hope for the bulls, as the selling volume today was weak.  Moreover, as I noted in my weekend post, both the historically market leading small caps and trannies have yet to break down below their respective 200 day moving averages. With that said, however, allocating your precious capital based on “glimmers of hope” is categorically not an investing strategy.