This is the second time in a week that we have seen a stunning one day rally. Most of the Major Indexes had their largest move in over 4 years and the NASDAQ broke a 6-year string. That being said, what does it mean? First, and most importantly, it tells us this market
was largely oversold in the near term. The velocity of these two rallies indicates the market was ready to snap back with ANY good news. The problem was we have not seen any in weeks.
The velocity or sheer magnitude and speed of the rally are worth examining. Often times, the speed we move in a direction can be a good indicator of where the market may be heading. This holds true on a daily scale, where you see the market inch higher over and over only to be slapped down rapidly or vice versa. This also happens on a longer scale as we have seen lately. In this case we slide continually lower daily but have brief rapid snapbacks much like a rubber band.
Where does that leave us now? We need to see how we process this rally to give us a clearer picture of what the market holds. I don't think anyone believes we are out of the woods yet with all the Credit Issues but the clearing may be on the horizon. Twenty years of trading options has taught me one thing, rarely is news as good or bad as it appears. The most important thing we need to do is get this mess in the open. Traders can handle good or bad news, uncertainty is the killer.
I am writing this on Wednesday Morning and we have a nice rally going on with the Vix
trading around 25.5. My suspicion is that we may have to give back a portion of these gains to hold and continue this rally. I cannot stress the importance of being nimble and cautious in this market enough. If you stick to tight trading there are plenty of opportunities. Good Luck!

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