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It was a very good week with SKF (ultrashort financial), SDS (ultrashort S&P) & QID (ultrashort QQQQ) providing nice returns. I mentioned on the other blog that the SKF was released in favor of the more moderate SDS, which was subsequently sold into yesterday's close. I continue to hold QID however. There are a few reasons I lightened up short, including:

• All the hype surrounding the anniversary of the Crash of '87.
• The fact that I own gold stocks that are holding up very well.
• Healthy cash & equivalents on hand.
• Healthy short gains this week and I refuse to give them back. I have fought the pig too many times and lost to get greedy (I fought the pig and the... the pig won, I fought the pi-ig and the... da da da da... pig won).
• 'Dave the Bear' is sending me rather confident sounding emails ;-) and finally...
  
• The charts are approaching levels where we may get a counter-trend rebound.

Regarding the chart, we see the Dow, carrying a ship of fools, dropping to an area where uncommitted, lazy and convention worshiping bulls may lose their nerve - this would be called an emotional support level, again figuring in the hyperbole and noise of the dreaded October crash hysteria (this would be the first crash on record that was seen in advance with a macro-telephoto lens. Manic bulls have gone from greed and complacency to fear and discord in a remarkably short period of time. I love those predictable bulls.

Here is the fun part, at least if this unfolds as I think it may (warning: trying to exert one's will over the market usually does not end well, so we will just say this is my stance or game plan for the time being). I think the market may catch a bid here in the next few days and run back up to the noted resistance area. A nice little whipsaw for bulls and bears alike. Momentum indicators show we are getting to short term over sold already. So be alert to this possibility. But there is likely unfinished business on the downside, to the 200 day moving average at a minimum. Then it will be time to reevaluate and factor in macro data like the state of the USD, long term interest rates (yes I know, my rates rising call stinks - thus far), Yen and of course the state of the credit markets, which are or should be in perilous position. But in an age of infinite fiat we remain aware that if indeed something can be papered over, 'they' will give it the old college try. Hence the gold stock positions which would be added to upon the broad market's next leg down, later this month or into early November.

Separately, here is a Kudlow spot where Biiwii.com guest writer Michael Panzner is pitted against raging bull Don Luskin. It is from April, '07, just before the summer of discontent set in. Note the hubris on Mr. Luskin's part vs. the steady common sense of Mr. Panzner. Funny thing is, Luskin got the rate cuts he insisted would not happen and yet the bulls took it and ran with it anyway. It's all good for the bulls. Economic threats are great enough to drive down short term rates and yet all that does is highlight the punch bowl. It still says here that no matter what happens in the intermediate term (our view remains bullish for nominal stock prices beyond the next couple months), this is a mess. A drunken, debt enabled mess.

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