Breakdown

Buyers looked ready to regain control of the market on Tuesday with a resounding burst to the upside in heavy volume. Back above the 50-day and 20-day moving averages, the bulls seemed determined to bring an end to the dull, downward market that typified May. Just as quickly, the sellers stepped in and defended the 1345 area on the SPX, an area that served as resistance both in mid-February and in early April. Not only did the bears reject the bulls' attempt at establishing a new uptrend, but they also followed through to push the market below what had been solid support at 1312. Even after a 30-point clobbering on Tuesday, there seemed to be no eager dip buyers, and the market failed to attempt even a meager bounce. The price and volume action in the indicies is clearly indicating that caution is warranted, and all new swing trade purchases should be postponed until the market regains its health. Trying to establish new positions in this environment is similar to a child asking his parents for a new toy right after he does something to anger them; it's best to wait for a better time when conditions will be more conducive to success. Until that time comes, cash will likely be the most appropriate position.