At the moment, all I can do is shrug my shoulders. Last week (as I posted on 9/23) I got into a boat load of very short-term trades. Going from virtually all cash to 40-50%. By Monday end-of-business day, I was (and am) at 80-90% cash. (Keeping positions in PWR and JPM.)
Needless to say, I am a happy trader, but I shrug my shoulders because I do no see short-term market direction with any real confidence.
IMO, the key is in the 10yr yield. (That is why I highlighted it the other day in 'contradictions'.) This will tell us when the Fed will start aggressively raising rates. When the 10yr yield begins to jump, probably reaching around 3.9-to-4% I will expect them to start becoming aggressive.
The economy has stabilized, as Buffett already told us, and my most unsophisticated economic barometer (ie a noticeable increase in road Traffic) tells me. With some growth, banks will lend again, businesses will hire or increase pay, and the economy will enter a positive self-sustaining cycle.
Hopefully this leads us into a relative sweet spot in 2010. Initially there should be a market shock to the aggressive rate increases, but the positive cycle should overcome this. The combined factors should also facilitate the strengthening of the US dollar.
Right now some internal weakness can be seen within the SP500. But I am hard press to argue that the market will go below 1030 w/the consolidation, unless the 10yr yield breaks down hard.
With a continued SP500 consolidation, I will take on similar trades as the showcased in the 9/23 post.