Snap back rally

I thought we won't have a snap back rally, but I was wrong. And market gaped down and then gradually rose to a very strong close, volume is light considering the strong price move.

1. When I saw the market erased the loss in first 30 minutes, I knew it's a snap back rally. Market was oversold, bears are nervous.
2. I sold all my ultra short ETFs today, and most of put options. I had small gains in short ETFs and big losses in these puts. If I didn't sell them, I'll be in very bad shape again.
3. To prove a point, I also added DIA calls, I think you can play two side of the market. I sold it for 5% gain, if I was patient enough to close it before the market close, I could get 20% gain.
4. Just before the market close, I added SDS, IWM puts. I want to keep the shorts and puts. And I added them back at much lower price. For example, I sold SDS at 53.50 and buy it back at 52.50. This really encourages me to do short term trade to get myself in better entry price.
5. Now I'm mostly in cash, with some ultra shorts and index puts.
6. I really improved myself in my trading, when market goes against my prediction, and I react quickly to avoid disasters.

Fed, CDO and liquidity:

1. Fed meeting is tomorrow, we'll have reaction for sure. I think we'll have negative reaction if Fed doesn't move to hint the future cut.
2. But Fed really can't hint cut at this stage, it will destroy the dollars.
3. And Fed can't increase the weight on rate raise either, it will destroy the housing market and move the bond much higher. So Fed will keep pretty much the same position, with a little twists in the statement. I don't expect they drop a bomb.
4. CDO issues are not over, and market will notice the risks again down the road, so liquidity will dry up sooner than later, that will be really bad for market.
5. And housing market won't get better any time soon.
6. So don't expect strong growth in this year.
7. Do expect a weak market ahead of us.

Some market observations:

1. TWM dropped the most among all ultra shorts, this indicated to me this is a short covering rally, since IWM is bears' favorite index to short.
2. ^VIX dropped too fast.
3. ISEE didn't rise as much as I expected.
4. S&P500 is still under 50MA.

Action plan:

1. I think today ^VIX dropped 18% to 15 is good sign for bears, because the risk premium are quickly removed, again.
2. So my plan is to gradually add shorts and puts back.
3. I still think we'll have a 10% cut in S&P 500 ahead of us, maybe not from current level, maybe another 1-2% upside in S&P 500.
4. Tomorrow I expect two possible paths to the Fed statement:
5. Open flat and move higher in front of the Fed meeting, then sell off after.
6. Open lower and move lower ahead of the Fed, then another snap back rally after.
7. But there is another remote possibility which I like the most, we open lower and move lower ahead of the Fed, then we sell off after, erase all today's gain and some.
8. I probably won't add shorts or puts until after the Fed meeting, to be safe.
9. I may sell the shorts and puts I bought today to take profit, and then add them back when the snap back rally happens again.