Week 8/13

Even though we had credit crunch cross the global, all three major indices in US managed gain for last week. And VIX hit yet another new highs in 4 year. I don't see this market can rally out of this on central bank's injection of liquidity.

1. Do you think we can rally from here? With unsolved the subprime issue, and CDO issue, which no one knows how bad things really are, that's the uncertainty market hates.
2. And we're in a seasonal weak market months, September and October are two of the worst months in a year for the market.
3. And Fed and ECB both contradicted what they said for interest rate (hiking, fight inflation) and what they did (injected liquidity into markets by more than 200B in two days!).
4. Fed even used public money to buy risky mortgage CDO to show their confidence. Wow, who can say the real economic issues like these can be solved by Fed?
5. I see more vicious cycle of up and downs ahead next week, with option expiration week, the VIX will rise again before it moves down.
6. Unless we have a black Monday kind of events, otherwise, I don't see how we can resume rally. We need a fresh start, and only a correction can resolve this, it takes time and some serious unwinding of risky investments.
7. The way VIX spiked each of the last four weeks, tells me people are preparing for black Monday, they don't want to get caught in an event like that.
8. The aversion to risk will further put weight on credit crunch, since all banks(which has bad loans of their own) will add their own liquidity (cash) by holding it, they're afraid of let the cash back into the market without know if they can get them back or not.
9. As a trader, you rather miss chance than get caught in losses again.
10. Therefore, I think the safest way is to play the short side on a very strong rally. And only play long when the crash has happened.