Today the market ended with an impressive rally after creating new intraday lows. The reversal was quite amazing. Selling pressure simply evaporated, and buyers stepped in. When I lack a good explanation for market behavior, I stay out of the market. This rally was not driven by the battle between Wal-Mart and Intel/Unemployment. This wasn’t driven by the silly congressional hearings on hedge funds. This was sentiment-based. I find that unsatisfactory for such a big move. There are still a lot of unknowns out there, and still quite a bit of room for downside surprises.

I, fortunately, was at lunch, eating a delicious turkey and bacon sandwich. I was going to buy more puts as the market crossed +200. Call it a gut feeling. No, not really. I watched the rally on my iPhone, but really couldn’t bring myself to try to buy options on that thing. I need to sit down and figure out what options I should be buying next. Perhaps the market will be kind enough to open up tomorrow so that I might have a chance to act.

Incidentally, I think that sentiment will be getting worse in the next three months. Property values are falling in New York City. Andrew Jeffery at Minyanville has a post here. In Chicago, market epicenter number 2, Mayor Daley has been warned by CEOs to prepare for massive layoffs. Mish has his post about that here. The point is that there are macro factors at play that can cause sentiment to get worse for traders. It’s no secret that local mood around the markets influences market sentiment and market direction. For an extreme, almost humorous, example of that, look here.

The fact that analysts can still be surprised to the downside is evidence enough that there is room for sentiment to fall. Though the market will bottom before the economy, I don’t think we are there yet. The fact that a new low can cause such panic buying is also evidence that we haven’t had true capitulation.