Say yes to the crowd?

Yesterday
After the morning rally the market continued lower without many attempts at the upside to close at a new 52 week low. It seems almost that the market has slowed down just a little bit the past few days. Considering how fast we have dropped it was assumed that it cannot go on forever, however, we have not been able to setup a rally off this extreme down turn and continue trading lower in a narrow trade channel. VIX staying extremely close, past 3 days pretty much the same range with the close getting narrower and narrower.

Today
Ok since we are talking about policies and it was brought up in the comments yesterday. So everyone knows we are talking about marked to market accounting rules - again looking it up on google if you do not know what it is.

Now applying a change here, we are talking about a major change, one that would make financials rally like never before. Its probably as large of a rocket or larger then what the Feds did back in October/november last year.

While it makes sense from one perspective to manipulate the markets as we have dropped quite a bit we are "only" at 676. The feds know how much worse its going to get and this is one of the policies they may want to hold on to, there are only a few aces left, this is one of them. They have to decide if its time now. We are seeing a lot of outside pressure coming into the market place almost forcing them to say yes to policies - and quite frankly, look at the markets from 945 to 676 in less then a quarter, I can understand why there is so much pressure. On top of it, we did not hold the 700 range which again is quite negative so there may not be much of a choice but to inspire a rally here. As we are approaching 50+% numbers we have immense pressure on 401K's. All the average investors have seen are down days after down days - and every day your account is getting smaller and smaller - they need to see some sign of relief because otherwise why not take out the money?

Back to the markets, premarket we are already close to yesterdays highs, keep in mind at 8:30 we have Bernanke speak so we have some more information to absorb before the open. Watch futures carefully. If we do end up breaking yesterdays high, there is a chance to see 709 and 716 respectivly so be careful. If that is to occur we have to watch the action carefully as this could be a breakout of the trade channel we have established off the mid 800 range.

I still feel very strongly that our current low of 666 is not yet the final bottom in this cycle, but we have to be careful and watch trade action carefully.

How to trade this?
Well yet again a large GAP open today, re-read our GAP analysis from last week and watch today carefully to analyse if the low of the day could be established in the early morning hours. If we are to reach the 700 range the 709 represents the best short there with great protection.

Other then that, again, stay light, and be patient.