The markets have been extremely volatile these last few sessions. Up and down, down and up. This almost reminds me of the Goliath roller coaster ride at Six Flags Magic Mountain and if you’ve been on that ride then you’ll know what I mean.

I put together a crude (MS paint) chart to give you guys a visual of exactly what I’m talking about. For the record, I am not, in anyway, your financial advisor or your big-shot fund manager and I know nothing about where the market is heading. I try to analyze the markets using technical analysis, which I have been using for the past 4 years to analyze and rationalize my trades.

These are some tools I use in order to RATIONALIZE my trades. I put emphasis on the word RATIONALIZE because in today’s environment, feelings and emotions can clouds one’s judgment and forces us to do crazy things which one will regret later on: panic selling, throwing in the towel, or buying low thinking it’s cheap to see it go even lower, etc.

The prevailing (longer-term) trend is lower and that’s quite apparent by the chart. The short, intermediate, and long-term moving averages ALL point lower and we will see some resistance around that 10,000 level, which is not only a psychological barrier but where the 13SMA (simple moving average) stands. The hardest game on Wall Street is picking bottoms and no one knows if this is the bottom we have all been looking for or just a short-term bottom, but my instinct tells me this is just a short-term relief rally we saw today.

The Dow Jones lost 2400 points last week and regained 900 points today, roughly 38%. For all of you Elliot Wave fanatics, this looks like an ABC down (Down, then up a little, then back down even lower) and I think we will see something of that nature within the next couple of weeks. Today’s impressive 11-12% gains across the major indices confirms that we were deeply oversold. For this “biggest point gain ever” day I would expect to see people rushing in buying all they can on massive volume, but instead we get a little over average volume, which shows that the buyers are buying, but they’re cautious about doing so. I do not see any conviction in today’s move. However, I’ll give the benefit of the doubt to the bulls as we see a “spinning top” on high volume, which usually represents a turning-point in trends as people are indecisive on where to go and the bullish engulfing today confirms that, for the moment and at the least, the very short-term trend is higher.

A likely scenario playing in my head is that I’m expecting the markets to open tomorrow higher and for the week, we’ll consolidate around those levels as we await for more (possibly bad) news to come. All the suckers (for lack of a better word) who believe that we have hit the bottom of this financial crisis will get sucked back in to the markets, only to see them get washed out later on. Today was just the market patching the wounds up and I see someone ripping off the bandage in the near future.

Then again, I could be all wrong.

Proceed with caution, brothers. Nothing is safe, not even your mattress. Cash is king and remember, there are always other opportunities to pursue!