All We Need Is Just a Little Patience

 | Sep 09, 2011 | 8:45 AM EDT  | Comments
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"Genius is nothing but a great aptitude for patience."

--George-Louis de Buffon

With the gap-down open this morning, the major indices will be close to where they were a month ago.

The good news is that we continue to hold above the lows we hit in early August and we have an area of support that could serve as a solid foundation out of which an uptrend can emerge.

The bad news is that we have been churning for quite a while and have not been able to build any upside momentum.

Any retest of the lows holds a very high risk of failing. Many traders are frustrated with this market, which has not been easy to maneuver. We have broken charts, no leadership other than precious metals, low volume and random action.

It is a very challenging environment, but it is the nature of the market to go through these periods that cause a high level of frustration for participants. As I've noted many times, bad markets wear you out rather than scare you out.

Many market players tend to think that market corrections end quickly after a bout of panic selling like we had in early August. Marginal holders capitulate and once they are gone, the market can return to health. That may happen on occasion, but the more common course is the market drips slowly lower, causing market players to give up out of disgust rather than fear. Dealing with a market that doesn't do anything for a month takes a much greater toll on investors than contending with a quick drop over a few days.

We are in one of those periods where the market is doing its best to wear us out. The action isn't that bad but there are a very limited number of opportunities, and it is easy to give back hard-won gains when we gap down like this morning.

Unfortunately, there is only one way to deal with this action and that is with patience. The worst thing you can do is fight it and try to force trades that aren't working. It isn't very exciting, but avoiding losses in this sort of market gives you an edge. If you can keep your portfolio close to its highs as we go through this bleak period, you have a tremendous advantage when conditions improve.

One thing to be careful of is the temptation to make grand predictions. Folks have nothing else to say so they start predicting major market turns. Often it is just wishful thinking in a dismal environment, but if you are sick and tired of the current action you may be inclined to embrace it.

I'd love to offer advice other than patience, but sensationalism just isn't the way to deal with a market like this. Just keep grinding and let it play out until conditions change. One great certainty in the stock market is that, eventually, conditions will change.

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