The initial crash this morning could be blamed on the the fact that Paulson says they are not going forward with plans to bailout bad mortgage debt. Traders saw this in a very negative light and pushed the Dow down 400 points. What caused the rally is anyone's guess and probably owes a lot to some healthy herd mentality among institutional traders. Doesn't this really just mean that no one knows what is going on?

I see a lot of traders pointing to the fact that we had a 900 point reversal today on the Dow with a positive close as a good thing. I disagree. In fact, I think the whole day spells trouble for stocks.

I would suggest that big moves like these are not good things. Volatility extremes are indications that traders have a very loose grasp on where values should be and that equals risk not bullishness.

The one day move may look good but the extreme price moves are a bad sign. In the chart below you can see how volatility has been spiking during this market disruption. The indicator I have applied is a one day average true range indicator. The regular spikes of 600-900 point days is confirmation that traders are very uncertain.

By lmarkets