Going Vertical

"I feel the need, the need for speed."
--'Maverick' Pete Mitchell (Top Gun)

Another N-V-T-S trading day. Last night the Dow futes were down about 300 but in the span of a few minutes in the early am prior to the bell, futures reversed higher and were up about 1.5%.

After the opening bell markets rallied a bit and then oscillated in front of the FOMC statement. Kowtowing to the market's need for speed, Uncle Ben & Co indicated that the Fed would keep interest rates at zero until at least mid 2013 (the 1st time I've ever seen a specific time frame expressed here). The Fed also promised to employ various 'policy tools as appropriate' depending on economic conditions.

Initially, markets didn't like this statement and the indexes drained to the tune of about -2%. Then, in classic 'the first move on FOMC day is a head fake' fashion, stocks reversed and ripped higher, ending on the high tick. The Dow was +429 with the SPX and COMP up 4-5% each.

Once again, we saw intraday range of more than 5%...major league volatility.

I was busy parsing out trading inventory into that late day lift. If we continue higher I'll hold more for sale.

It is my growing sense that we are entering a significant downleg--meaning that rallies should be sold rather than bought. The word circulating in my crowded keppe is 'deleveraging.' Over the past few days, we've witnessed what happens when market particpants want to deleverage in a big way: a tidal wave of supply.

I am having my doubts whether central banks have enough sandbags to stem the tide if deleveraging continues. There is so much debt and leverage out there that if risk appetites wane, I'm just not sure central banks will be able to hold it all together.

Think about it this way. In the last few days we saw all of the market gains realized during QE2 get washed away.

What does this imply about the size and effectiveness of another round of Fed intervention?

position in SPX