Rapid Cycling

Trading has not exactly been an easy ride lately as the market is trying to find some sort of a bottom to its latest bout of weakness. The market is going through one of those bipolar phases when it can't decide if bad news (and there are plenty of them) is good news (the Fed will keep cutting rates) or if it is so bad it can't possibly be good no matter what (a recession will be impossible to avoid). In psychobabble, what we have these days is not only bipolar disorder (formerly known as manic depression) but rapid cycling bipolar disorder.

Yesterday was a case in point. The morning news was uniformly disastrous, even by current standards. Merrill Lynch announced results that were even worse than the worst case scenarios and this despite the fact that the investment bank had done its best to prepare everyone for the worst. Housing data also came in worst than expected, a tour de force considering that it is now generally accepted that the housing situation will get a lot worse before it gets better. And finally, to add insult to injury, one of the rare sectors that had been reporting good earnings, the Internet sector, saw one of its illustrious members (Amazon) disappoint. All this added up to a relentless swoon that took the Dow down 200 points.

And then, after an obligatory test of the key 13,500 level, the Dow retraced the entire 200 points, egged on by rumors that the Fed would pull yet another trick from its hat and cut its discount rate a few days before it cuts its Fed Funds rate. And so the future is shaping up as a fierce battle between the Fed and the recession monster. The market will be counting points and reacting accordingly. No end in sight to the rapid cycling.