The market gapped up around 3% this morning on news of a US government mortgage bailout.  The way they release these things from behind closed doors on a Sunday night assures me the democratic process of our government is all and well (just as it was with Bear Sterns).

Personally, I do not believe the taxpayers should have to pay for the failed conduct of a few very rich guys (who will probably walk away that way too).  All that aside, how do we trade gargantuan gaps and how do we trade our cycle when we are already at an anticipated key level high for the week? There is one answer; very cautiously.

As I write this (Monday 9/9/2008 shortly after the open) I see that NYSE advancers beat decliners by a staggering 19:1.  This is the strongest breadth reading I believe I have ever seen.  This typically suggests a dramatic change in the mood of the markets.  Of course it will need to settle down a bit first, before continuing.  With that in mind, it is important to watch your risk exposure.  Wild swings are likely to occur as those with short term profits, take it, those who are short run scared, those trading on the bigger time frame jump in on the opportunity.

What typically happens in these cases, is the magnitude of the change is so large and occurred so fast, the majority will be afraid to short into it and longer term buyers will be reluctant to sell.

With that in mind, we do still expect the market to (continue to) follow our forecast this week, but, if you are not already in, take your time and find an area to enter that meets your risk reward needs.