Just one week ago...

On Wednesday May 5th, the SPX closed at 1165.

Today, the SPX closed at 1171.

Pretty hard to believe that the all the drama since Thursday has resulted in a higher market (not necessarily healthier).

After the initial drop, many chartists (including myself) began to analyze resistance levels as to where a shortable bounce could occur. First it was 1050, then 1060, then 1070 (50 MA), and most recently, 1080. Well, the market continues to climb and the shorts continue to get squeezed. Volume may be questionable, but high or low, the market just climbed about 9% the past 5 days.

Common advice given to traders is to never try and “catch a falling knife”, as stocks many times fall much farther and faster than they rise. Attempting to read recent market activity can drive one crazy, as no one is able to truly gauge such short term moves consistently. My portfolio is down about 5% the past week not because my ideas weren’t good, but because my timing was wrong. Support/resistance indicators just aren’t as useful during these crazy volatile market conditions.

The smartest traders I know didn’t trade the past couple of weeks (besides scalps). They preserved their capital, and are still awaiting better opportunities. I don’t blog much, but my message is that you are never smarter than the market. The only thing that is clear about the current charts is that they offer no obvious advantage to the long or short side.

My feeling is that we will head lower from here, but it’s not about how I feel. It’s about exerting the discipline to await clearer market trends before designating a sizeable portion of your capital to equities. Good luck and keep scalping away!

Brian