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Darting, Volatile Market Gets New Description: Wolf

Following a brief lift on better-than-expected earnings, the S&P 500 quickly gave back some gains this week as macroeconomic concerns once again came to the fore.

This back and forth debate is making for elevated volatility, quick turns with no apparent catalyst, and yet ultimately no breakout moves in either direction.

This “unusually uncertain” environment, to use Ben Bernanke’s characterization, feels like neither a bull market nor a bear market, traders said. It’s become a quick trading game between a well-defined range on the S&P 500.

“We are calling this market the ‘Wolf Market’ – not a bull market, nor a bear market, but rather a range bound market defined by quick reversals, short term trends, high correlation and high volatility,” wrote Michael Purves, chief global strategist for BGC Financial, in a note to clients this week. It means “quick, decisive hunting (long and short) within a prudent risk framework is needed.”

The S&P 500 made a high for the year on April 26 of 1219, only to fall just two months later to a new low for 2010 of 1011 on July 1st. This week’s poor action pushed the index back into the bottom portion of that range. Stocks, like wolves, are tending to move in packs as well, with all but 22 stocks in the S&P 500 little changed to down this week.

“We believe that conflicting bull and bear forces will keep the market in a state of agitated suspension,” wrote Purves. On the bullish side, the strategist cited strong company balance sheets and cheap valuations. On the bearish side, there’s sovereign risk and zero interest rates distorting the fundamental picture, he said.

If you guessed a market called “Wolf” wouldn’t be quite appealing to your average investor, then you would be correct. Retail investors have plowed $3 trillion into cash since the financial crisis began, according to BGC, and have kept it there amid this frightening trading action.

“The name is different, but the premise is exactly the same,” said Patty Edwards, founder of Storehouse Partners. “In our lingo, we’re calling it a ‘Super Bear Market.’ Violent swings, but usually a period of 17 to 20 years where the market goes nowhere. In super bear markets, you have to be more nimble, more agile with your trading.”

The wolf has clearly gotten into IBM this year. One glance at Big Blue’s chart shows amazing quick darting, action that ultimately goes nowhere.

“Why don’t we one up it and call it the ‘Wolf Bait Market’ for anyone without the discipline to sit on the sidelines patiently if that is the best course,” said Andrew Barber of Waverly Advisors. “It’s a game of musical chairs and we would advise anyone to stay on the sidelines if they lack firm fundamental and tactical conviction in their trades.”

To outrun the wolf, Barber is using a pairs trade, going long large caps and short small stocks. It’s paid off since April as tight credit concerns and slow growth fears have sent investors into the larger, well-capitalized companies.

For the best market insight, catch 'Fast Money' each night at 5pm ET, and the ‘Halftime Report’ each afternoon at 12:30 ET on CNBC.

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Trader disclosure: On Aug 13, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Seymour owns (BAC), (BX), (GOOG); Adami owns (AGU), (BTU), (NUE), (C), (GS), (INTC), (MSFT); Adami’s wife works at Merck; Terranova owns (AKAM), (BAX), (FCX), (MOS), (PFE), (SU), (XBI); Terranova owns (GLD) Calls; Jon Najarian owns (CSCO) short calls; Jon Najarian owns (LVS) short calls; Jon Najarian owns (AA) short calls

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Symbol
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S&P 500
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IBM
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