A trading idiom is, “The market’s reaction to the news is more important than the news.” Today, after watching the swing in the DJIA futures, I set a 20 minute alarm for myself. I wasn’t going to take any position on the market for 20 minutes after the opening bell. In that time, the Dow swung from down 200 to up 40. I thought, “Maybe my rally is finally here.” I bought a single March SPY 100 put option (SWGOV.X), just after the top (I didn’t know it at the time). I felt good about my entry because I bought it for less than I sold it for yesterday. I put a limit order to sell at about a 20% gain (11.00), but was honestly hoping the market would move higher so that I could “sell the rally,” and get out of day trading mode. The market proceeded to tumble, and my limit order was just filled. 180 bucks (after commissions) is not a lot of money, but that appears to be the only position I will take today (barring a crash or comeback rally).

So why did the market not rally? Isn’t a coordinated rate cut a good thing for all investors? My opinion is that the market was looking to sell the rally. Everyone was ready to sell. A rally requires someone ready to buy. Lately, we’ve been seeing all the buying done during the open and close of the market. There hasn’t been a real impetus for a rally. This has me concerned. Certainly, those holding positions looking to sell any rally may be getting impatient and might sell regardless. The short ban ends tonight. Monday is a market holiday. Those two items would be enough to test my patience (it has, most of my money is on the sidelines). On the other hand, this kind of extreme pessimism is just what the market needs to establish a bottom. Well, that was my hypothesis. The housing report today was positive, and no rally ensued from it, either. That is strong evidence that the hypothesis was wrong. If so, the trend is still down, and the bottom has not been reached. I remain unconvinced either way, but my belief is for more downside.

Again, I’m in day trading mode because each day is a potential deluge of news items that I cannot possibly analyze or predict (though it’s easy to predict that something will happen on some days). Today was kind of a bust (that single option was my only trade). Still, on any day you make money, remember how much better off you are than the average American. America’s retirement plans have lost an estimated $2 Trillion in the last 15 months. This is another data point that makes me worry about a crash. At some point, liquidation and redemption can become self-reinforcing. Americans don’t like seeing their retirement accounts dwindle. That money won’t just go to the sidelines, it will leave the markets for good. Although, maybe I’m wrong. Mattress sales are down. You have to have a mattress to hide money under it, right?

UPDATE

Just before I clicked “Create post,” the market rebounded back into the green. This could be interesting.

UPDATE 2

Monday is not a market holiday. It is a bank holiday. My broker has a calendar, and has the 13th marked as a market holiday (it even has a nice little hover reminder when you mouse over it that says “Market Holiday”). Fortunately, my own mother reminded me that “Nobody other than bankers get Columbus Day off.” In my best Red Stripe Jamaican accent: Boo Sharebuilder, Hooray mom.