The current stockmarkets look nothing more than a casino right now. Volatile moves both ways with little rhyme or reason. Prices can close in the gutter one day and then be sharply higher on the opening the following session due to some massaged piece of news.

Is there anyone else out there that gets the impression that Wall Street right now seems to be under some sort of State management?

The Fed combined with the US government seem highly motivated to do whatever is necessary to prop up prices in the short term. But these measures and soothing words may create explosive economic repercussions at some time in the future.

What Happens If The Fed's Strategy Suddenly Stops Working

If you think about recent stockmarket problems they aren't really to do with sub prime mortgages. Rather they're to do with the overall debt problem hence sub prime mortgages are just part, maybe even the start of the problem. And until this debt problem is sorted out (most probably naturally via a recession) the global economy will always be open to massive downside risks and financial scandals.

The real risk right now and looking is the complacency by the majority of market participants in thinking that the Fed by cutting rates at any sign of danger can halt market corrections.

So what happens if the markets start to viciously sell off again and the Fed does its usual thing of cutting rates but this turns out to be a catalyst for prices to dump even further?

There's not a shadow of a doubt that this type of scenario will happen sometime in the future so investors should prepare themselves accordingly because this is where the real risk lies in the market.

Short Term Trading Strategy Idea

If rates are cut again when the stockmarket is in free fall a good trading strategy to employ might be this one -

• Watch and wait as prices go through the roof
• But if the market can't hold its gains and starts to decline with some momentum you'll know it will be all over
• The market could well quickly turn into a feeding frenzy for the short sellers where mega profits can be earned within a 24 hour period
• It's at events like this when switched on traders can make half a year's salary (maybe even more) in a day or two

How We Are Approaching The Current Stockmarket

What we have been doing is to start selling all of our holdings (apart from Gold, Google and Marchex) in companies that are not the bluest of blue chip and are also not involved in the finance sector.

BP is a good example of a pretty good defensive stock to own right now and for those interested in charting, the £4.90 to £5.10 level looks like rock solid support (currently £5.60) - expect it to bounce from that level at least.

FTSE 100 Weekly Chart : Sep 2004 - present

Dow Jones Index Weekly Chart : Sep 2004 - present

S&P 500 Index Weekly Chart : Sep 2004 - present

Where To Place Your Cash If Your Don't Like The Stockmarket

Apart from the problem of the current high inflation and the risk of this heading higher cash looks a pretty good asset class right now.

Summary

The good news for investors is that the long term trend in the stockmarket is still up, however, it has certainly been damaged.

The bad news is that there's plenty of uncertainty around and if there's one thing that markets hate it's uncertainty.

So expect dangerous and very choppy market conditions over the next month and if you're playing the market for short term gains (either long or short) it's most probably good advice to take profits at regular intervals and don't overstay your welcome.