Monday Morning Musings

So much for blogging from Mexico. I got back late last night, and am still trying to shake off the cobwebs. And this market isn't helping!

I had been writing over the last week or so that the fact that the S&P couldn't bounce convincingly from the 800 level concerned me. When that level was broken last week, it opened the door to further selling last week and a retest of the November lows.

Whether said retest will be successful can only be determined in hindsight, so we need to watch the market carefully to see where it finds support. The constant deluge of news from the government makes it difficult to forecast beyond the very short-term. And this uncertainty is being reflected in the high volatility index (VIX), which is hovering above the 50 level.

The dollar is up today and the Yen continues to move lower, which should be a positive. Gold is also lower after brushing the $1000 level last week.

Financials are one of the few groups higher this morning, after the government said it will convert its preferred shares into common equity, which will increase its stake in the company to as much as 40%. The govt. also announced that the Capital Assistance Program will be initiated Feb. 25th, and serve to address the capital needs of banks.

Asian markets were mixed overnight. The 10-year yield is up to 2.81%, below last week's high of 2.88%.

Trading comment: Last week I put on additional hedges (before I left) as the market struggled. With the SPX testing the 750 level (it hit 754), I would think a bounce is in order. The question for me is whether to take profits on those hedges, add some new trading long positions, or some combination of both.

In a volatile market like the one we've had this year, trying to make numerous small trades will make a big difference vs. buy and hold strategies.