Kass: Mulling Over Yesterday's Turnaround

This blog post originally appeared on RealMoney Silver on Jan. 24 at 7:32 a.m. EST.

I wanted make several observations/points in light of yesterday's turnaround.

1. Yesterday's opening missive, which attempted to highlight some possible solutions to the housing and credit woes, was timely as equities turned upward coincident with constructive news on the monoline insurance front.

2. The market followed the template I presented earlier this week: It has resembled the crash of October 1987.

3. Financials were clearly coiled and exploded on Wednesday, with many stocks in the sector rising between 5% and 10%. Vornado Realty Trust (VNO Quote - Cramer on VNO - Stock Picks) up $10, the iShares Dow Jones U.S. Real Estate Index (IYR Quote - Cramer on IYR - Stock Picks) up 8% and the action in the money center banks were conspicuous examples. Nevertheless, the short-term move was in the extreme. I took profits as a backing and filling in the sector seems to be a good bet.

4. Yesterday was not likely the establishment of a trend. As I wrote recently, "Permabulls, permabears and trend followers will be frustrated, but those who remain market agnostic and sell the rips and buy the dips could be rewarded." In keeping with the "buy the dips, sell the rips" mantra, I took trading profits with the notion that I can re-establish long rentals on profit-taking, which will no doubt occur. I also sold SPDRs (SPY Quote - Cramer on SPY - Stock Picks) short in after-market trading; the futures rose by about 7 points soon after the close. The market will remain a roller coaster, frustrating most investors.

5. The bond market, like equities, had a neat turnaround, ending lower on the day. I continued to add to my iShares Lehman 20+ Year Treasury Bond (TLT Quote - Cramer on TLT - Stock Picks) short. If the Fed cuts by another 50 basis points next week, the fed funds rate will stand at 3%. The last time that fed funds were at that level was September 2001. At that time, the 10-year yield was more than 100 basis points higher than today's yield -- at 4.56% vs. 3.50%.

6. In my surprise list for 2008, I suggested that we will experience unprecedented volatility, with 2% daily moves becoming routine. I might have been too low. We are probably back to a market with no memory from day to day. I plan to continue to trade opportunistically with the thought that there is no real trend now. I agree with Rev.