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Volatility Key To "Snap Back Rally"

Two weeks ago, a lot of traders were talking about a Bear Market Rally. Many felt that the S&P could rally 20 percent before the end of the year. Know what? They got their wish. It just happened so fast (5 days!) that no one had a chance to catch their breath.

Today is a reality check. The economic news (Black Friday sales better than expected, NBER declares we have been in a recession since December 2007) is not as important as the volatility.

With expectations of volatility remaining at historically high levels, it is easy to have "snap-back rallies" and "give-back days" of 5 percent or more, just like the one we are now experiencing.

Another important point: there are very few people doing any kind of long-term investing right now. Day trading strategies are all that really matter. When you have a 20 percent move in the market, you need to find a way to monetize that gain. Today is it.

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It's not just all trading on volatility, of course: the bond blowoff (which has all the elements of a bubble) and the big drop in commodity prices (Palladium down 10 percent, Silver down 8.5 percent, Gasoline down 7.8 percent, Gold down 5.1 percent) are adding to the volatility, creating double-digit declines in coal and energy declines.

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