Another day of Bipolar Action

Someone asked me a question in comments about the technicals in this market, and frankly in this market news flow means more than anything else - so it is very hard to use conventional theories when the stock market rallies hard on a CPI number, and within 30 minutes crashes on Bear Stearns (BSC) news. There is no way to "game" this stuff, and hence technical analysis loses a lot of effectiveness. That said, I just sold a portion of my Ultrashort exposure on this panic selloff, that I had bought yesterday as the market rallied hard....and that same exposure I had sold Wednesday on the market rally... which was the exposure I had bought Monday on the market crashing.... this same batch of exposure (about 4% of the fund holdings, which I'm switching from cash to Ultrashort nearly daily) has risen/fell 7-10% nearly every day this week. It is nuts.

You get the picture. This is a crazy market... we now have had 3 days of 3% intraday swings THIS WEEK alone.... truly epic movements - I don't remember anything like this even in the heydays of the late 90s (up) or the (down) times of 2001-2002. We had large moves back then, but they were generally always in 1 direction week after week. What's different this time, is these huge moves happen within hours (or at most days) of each other, in totally opposite directions. This volatility will simply crush most people....

Anyhow, for now I assume we are in a new range of S&P 1270 (bottom) to S&P 1330 (top). This is lower than the previous range which was 1320 (bottom) to 1370 (top). So we are making stair steps downward in this market. Make a new low, base for a while, than move down a new low, then create a new base. So for now, we adjust to a new trading range and assume we will falter as we get to the top of that range and rally as we get to the bottom. Eventually that pattern fails and we break either up or down. But as we just saw last week with 1320 as the bottom, the more times you test that level, the more apt you are to fall through. So this is why I believe, along with all the realities of both the credit market and real Main Street economy, we will continue to break down. So my strategy is to play this pattern and "swing trade", and then just as when we broke 1320 once and for all, buy more short exposure once we break through 1270 with conviction. If we do move up (somehow, in the fact of all this historic carnage) well then you just have to forget all the realities and join the bull party, but I won't really be convinced until nearly S&P 1400.

We've rallied on so much hope (yesterday is case in point - just because S&P said they *think* we are half way through the credit writeoffs the market rallies 3% intraday) and so many Fed actions - the Fed is throwing everything it has at this market to keep it propped up. So this rallying off of hope/Fed actions can continue indefinitely until finally the realities of the enormity of the credit situation envelop the Fed. For now the market continues to cling to the belief that the Fed is bigger than market forces. So we can continue to make these rallies. But this is like an epic battlefield, and amazing action to watch... again the wildcard is the Federal government and a massive bailout of the entire mortgage business - something that I truly believe will be coming at some point later in the year. I only wish I knew then, because the "free market capitalists" in NYC will drive this market higher in a huge way once "socialism" and "nationalization" take over our financial system in full force. Irony at its highest form- a system built on extreme riches based on exploiting capitalism, praying for a government bailout. This is what it's come to.