Random Roger had an interesting tongue-in-cheek post called “The Best February Ever.” Here are some highlights:

If we can average 1% per day for the month, like we are starting out we’ll have the best February ever.

I will say this type of volatile rally is consistent with bear market activity but maybe I do have it wrong after all?

That pretty much sums up the market behavior of last week. Bad employment news was totally disregarded, and the markets advanced as if there was no worry in Wall Street wonderland.

While I agree with the view that this is a bear market rally, I am also aware that at some point a continued move up may signal the return to bullish territory. However, I’d rather be a little late on the upside than being whipsawed and having to sell a few days later again.

Reader Jeff submitted an interesting blog post dealing with an old problem that you may have thought had long been resolved. This piece was written by Jake Zamansky, a NY attorney and titled “Front Running and Institutional investors.” Here’s what he had to say:

You would think that institutional money managers, who have a fiduciary responsibility to their clients, would also avoid doing business with any firms that engaged in organized wrongdoing and ripped them off. But that certainly doesn’t appear to be the case. There have been repeated incidents where major Wall Street firms reportedly have traded in advance of major trades they were asked to execute for their institutional clients. This practice, known as front running, gives brokerage firms an unfair advantage because they have insider knowledge that a pending block order will likely cause a significant price swing.

Rest assured, even if the SEC finds that Merrill was front running Fidelity’s orders, nothing much will come of it. The matter will be settled by Merrill agreeing to pay a relatively insignificant penalty without admitting any wrongdoing. It will, of course, get to keep most of its ill-gotten gains. The SEC neither has the resolve, or the resources, to take on a big Wall Street firm.

Additionally, current news reports show that firms like Merrill Lynch continue to be involved in lawsuits alleging improper sales of investments. There seems to be no end in sight as to how brokerage firms repeatedly work for their own gains without having the client’s best interest at heart. In the case of Merrill, I suggest they rename their TV advertising campaign from “Total Merrill” to “Total BS.”

For more on this subject, be sure to read Mish Shedlock’s piece called “Merrill Lynch Opens Legal Hornet’s nest.”

Bond insurers have made front page news lately in the face of severe Subprime losses and their potential downgrade from ratings companies. Calculated Risk reports as follows:

Standard & Poor’s Ratings Services today lowered its financial strength, financial enhancement, and issuer credit ratings on Financial Guaranty Insurance Co. to ‘AA’ from ‘AAA’ and its senior unsecured and issuer credit ratings on FGIC Corp. to ‘A’ from ‘AA.’ Standard & Poor’s also placed all the above ratings on CreditWatch with developing implications.

At the same time, Standard & Poor’s placed various ratings on MBIA Insurance Corp., XL Capital Assurance Inc., XL Financial Assurance Ltd., and their related entities on CreditWatch with negative implications. The ratings on various related contingent capital facilities were also affected.

Apparently that did not sit too well with MBIA, as the report continues:

Chief Executive Officer Gary Dunton mounted a spirited defense on a conference call, following MBIA’s quarterly earnings report, against “fear mongering” and “distortions’ that he said have contributed to last year’s dramatic stock-price decline. He also said that MBIA’s capital plan currently exceeds all stated rating agency requirements.

MBIA hasn’t been downgraded so far; this is just a move to CreditWatch with negative implications:

Despite the significant losses posted by the company, Mr. Dunton said, “there is nothing that we can identify that justifies the 80% drop in our stock price since last year.”

Hmm, what am I not seeing here? A company that has lost billions of dollars due to Subprime investments and the CEO can’t justify why the stock dropped some 80%? Maybe eating a little bit of humble pie would be a step in the right direction instead of sounding like a cornered rat moments before it’s being devoured. Or is a desperate offense a good defense?

My latest No Load Fund/ETF Tracker has been posted at:

http://www.successful-investment.com/newsletter-archive.php

Another interest rate cut was all the bulls needed. Despite negative economic news, the major indexes closed sharply higher.

Our Trend Tracking Index (TTI) for domestic funds/ETFs moved to +1.42% above its long-term trend line (red), back into bullish territory. To avoid a whipsaw signal, I will wait for further upside confirmation before moving back into the domestic market.

The international index dropped to -4.24% below its own trend line, keeping us in a sell mode for that arena.

For more details, and the latest market commentary, as well as the updated No load Fund/ETF StatSheet, please see the above link.

David Gaffen of the WSJ had this to say:

Don’t like what the stock market is doing? Wait a few minutes. The Dow Jones Industrial Average was lately up 111 points, after losing nearly 200 points at one point earlier in the day.

The volatility has only increased in the last month — during January, the average daily trading range for the 30-stock average has been 285.49 points, which includes today’s range, currently at 344 points.

What that means is the current wide swings are a sign that uncertainly in the market place about the major trend is here to stay for the time being. Eventually, a breakout will occur, either up or down, and a new major trend will be established. In the meantime, simply accept trading ranges of some 300 points as a temporary theme. The road ahead could remain rocky as David Nelson of Minyanville explains:

Without the wind at our back, making money and holding onto profits will be difficult at best as the wounds are fresh and will take some time to heal. The overhead supply of stock to be sold is large and getting larger. You can feel like you aren’t bullish enough when the market rocks and too bullish when the market rolls.

Let’s slow the process down and eliminate the day-to-day overreaction to every bit of news that hits the tape.

Read that last sentence again. Don’t get too caught up in day-to-day events and keep the big picture in focus. The big picture is that we try to get onboard major trends and avoid sideways patterns that serve no purpose other than to cause needless frustration.

Despite all of the hoopla and anticipation of the Wednesday’s interest rate cut, the markets ended on a down note. In a way, it may have been a classic “buy the rumor sell the fact” type of outcome. Personally, I think it’s slowly sinking in that these unprecedented rate cuts of the past 8 days actually represent bad news about the health of the global and domestic financial markets.

The major averages spiked up after the announcement of a 50bp lowering of rates with the Dow gaining some 200 points before drifting into negative territory on the close. Apparently, the downside move was spurred by a news report that bond insurer FGIC was downgraded by Fitch from AAA to AA. The markets hit a glass ceiling and it was downhill from there.

So far, this week’s events have left our trading plans unchanged. The domestic TTI remains below its long-term trend line by -0.37% while the international TTI has retreated to -7.39%. Both are therefore in bear market territory, and I will look for more downside confirmation before initiating any short positions.

Right now, we’re safely on the sidelines. Friday’s employment report has the potential to throw the markets into a tizzy fit. I will watch the action but will sit on my hands until some major trend emerges.