Dear Traders,

Do not be seduced by this market.  It is just plain dangerous unless you are nimble and really good at scalping. The market is running on hope of salvation from the Federal Reserve.  In essence, the Fed is following advice that British journalist Walter Bagehot offered in his 1873 book, "Lombard Street.”  Bagehot wrote, “In times of "internal discredit" (when uncertainty leads private players to pull back and fear replaces greed) the prescription to the central bank is: Lend freely. A panic is a species of neuralgia, and according to the rules of science you must not starve it.” Over time, Bagehot's advice has become the orthodox practice of central bankers, whose main purpose is to act as "lender of the last resort."   

What is a neuralgia?  Neuralgia is defined as an intense burning or stabbing pain caused by irritation of or damage to a nerve. The pain is usually brief but may be severe. It often feels as if it is shooting along the course of the affected nerve. Neuralgia is caused by irritation or nerve damage from systemic disease, inflammation, infection, and compression or physical irritation of a nerve.  These markets are afflicted with systemic disease, and the neuralgia is the panic and pain produced from the systemic rot.   The neuralgic pain is the result of a systemic illness of declining confidence and illiquid markets.   The Fed is feeding the neuralgia in an attempt to quiet it. The Fed fed it on Friday and is continuing to do so, since the systemic rot may be morphing into that insatiable Venus fly-trap plant (Audrey II) from “The Little Shop of Horrors:”

http://tinyurl.com/2dn3cy  (Lyrics are below)

[AUDREY II]
Feed me! Feed me! Feed me!
Feed me, Seymour
Feed me all night long
That's right, boy
You can do it
Feed me, Seymour
Feed me all night long
'Cause if you feed me, Seymour
I can grow up big and strong

Would you like a Cadillac car?
Or a guest shot on Jack Paar?
How about a date with Hedy Lamar?
You gonna git it.

Would you like to be a big wheel,
Dinin' out for every meal?
I'm the plant that can make it all real
You gonna git it

I'm your genie, I'm your friend
I'm your willing slave
Take a chance, just feed me and
You know the kinda eats,
The kinda red hot treats
The kinda sticky licky sweets
I crave

Come on, Seymour, don't be a putz
Trust me and your life will surely rival King Tut's
Show a little 'nitiative, work up the guts
And you'll git it

[SEYMOUR]
I don't know. I don't know
I have so, so many strong reservations
Should I go and perform mutilations?

[AUDREY II]
Think about a room at the Ritz
Wrapped in velvet, covered in glitz
A little nookie gonna clean up your zits
And you'll git it

[SEYMOUR]
Gee I'd like a Harley machine,
Toolin' around like I was James Dean,
Makin' all the guys on the corner turn green

[AUDREY II]
So go git it
If you wanna be profound
And you really gotta justify
Take a breath and look around
A lot of folks deserve to die

[SEYMOUR, AUDREY II]
If you want a rationale
It isn't very hard to see
Stop and think it over, pal
The guy sure looks like plant food to me.

[SEYMOUR]
He's so nasty, treatin' her rough,

[AUDREY II]
Smackin' her around and always talkin' so tough.

[SEYMOUR, AUDREY II]
You (I) need blood and he's got more than enough

[AUDREY II]
So go git it!

A free download of “Lombard Street: A Description Of The Money Market” by Walter Bagehot is available here: http://tinyurl.com/2x4ddm

As the market participants go from denial to hope to panic to disgust to euphoria to confusion and back to hope----the volatility will be all over the place.  When in doubt stay out. Cash is a position. If you have to be in there, trade smaller and obey your stops. 

Another CRITICAL TENET of successful investing and trading is this:  Don’t fight the Fed.  It doesn’t matter if you agree or disagree with the Fed.  It doesn’t matter if you get a nauseous feeling when you see grandstanding from politicians or any other talking heads who are stepping in to espouse their agendas.   Don’t fight the Fed!