I like stock charts. I have studied many of them over the years, and consulted with the best chartologist. Today's big rally, following last week's meltdown, has retraced about two-thirds of the markets losses in the last week. But it has also produced a scary, bizarro chart. Today's gap-up now leaves a huge gap between the 1130 and 1145 level, which I have marked below with some white lines. Let's call it a "Euro freak-out" gap.  It is my experience with dramatic moves like this that these gaps are almost always filled again.This ugly chart is among several reasons why I'm not confident in today's "comeback rally."

This morning, the stock-market action is looking a bit like Charlie Sheen after a raging Hollywood party. Remember, the best parties always have a hangover. The market has grown increasingly volatile over the last few days. It's not the kind of action that I like. In addition, the currency world has been positively insane, with massive swings in the Euro, Dollar, and gold. Right now the dollar is screaming and the Euro is down about 150 points. This wild currency action is indicative of more instability in the sovereign debt markets. I spent the morning unloading the most of the remaining stocks that I owned that had been accumulated in the last 6-12 months. The reason? A lot of these stocks have run long and strong. These violent market swings, and the S&P chart, have my spidey-sense tingling. I will keep a few low-priced blue chip stocks but for the moment, with this kind of market action, I'm content to sit on a very large cash position. And I'm hedging that by shorting S&P futures. With the futures position, I don't have any problem being slightly net short at the moment. See the chart below and what do you think? I've seen this  formation before and I like to call it a "diving-board chart." That's fine, if there's water in the pool. But what if the pool is just cold, hard cement?

In bull/bear chatter on the stock market, my bull friends are getting increasingly confident. That's a contrairian warning sign to me. We are close to a possible turning point in the markets. My guess is that this would happen after expiration on Friday. My spidey sense is tingling: I see market volatility ahead. Here are my Top Ten Reasons why I don't trust this market right now 1) VIX, a measure of volatility which often moves in opposition to markets, is at a multi-year low. 2) ECRI leading economic indicators down 3 weeks in a row. 3) Increasingly wild and unpredictable action in the dollar. 4) Informal polling of business friends: Not one person says business is much better. 5) Correlations between the S&P, dollar, and gold are breaking down for the first time in many years, interesting a possible change in market dynamics. 6) Several leading technical analysts calling for the top. 7)  Bullish sentiment near multi-year high. 8)  "Things never look as good as they do at the top." 9) Fed running out of money in the printing press division. 10) Chart showing a perfect double-top in a long-term 10-year bear market chop. Of course, I'm just being cautious. I let the market dictate my actions. I reserve the right to change my opinion immediately, especially if the market is able to break out after options expiration this Friday. One reason why the top MAY NOT be coming: 1) The Feds are starting to print more money again because they know the alternative is disaster.

How do you trade or invest in a market where the most volatile moves occur in 5-minute spams driven by computer algorithms on steroids, the average investor's involvement is limited at best , and the entire complexion of the market can be changed with one stroke of a pen by a government official. The answer: Very gingerly. Fundamentally, there are interesting parts of the market: you can find high quality, growing stocks with low valuations. But technically, the market is a mess. After plummeting to a low near S&P 650 in the panic bottom of 2009, the market has rallied back toward S&P 1150 It now sits at 1090, but the action is lackluster and the chart is certainly starting to look "toppy." The rallies come on low volume, and the selloffs come on high volume, which is a bad sign.

Then there's the huge, macro picture of the market. The economy is improving, but much of that has been engineered by deficit spending. There is a huge, direct correlation between the amount of liquidity the government has pumped into the market and the rally in stocks. This can be viewed almost as a direct transer of cash to the banks in the famous bailouts: The Feds bought Treasuries and mortgage-backed securities from the banks, and they took they took cash and and piled into risky assets such as stocks and commodities to gun their portfolios.

What now? Well, for the market to have another leg up, you need to find another source of liquidity, as the free government money dries up. We need the famous "cash on the sidelines" to get involved. Now, the problem with that is a lot of that cash has been used. Some of it went into stocks, some of it went into bonds, but a lot of the money has been put to work. In March of 2009, there was more money in money markets than there were in equities. As the equity markets rallied, more than $500 billion was drained from money markets and put to work in equities. I don't think you count on the cash from the average-Joe investors "on the sideline." This money includes money that people are stashing in their mattresses and keeping in their 401K for retirement. Following the events of 2008, the average investor is likely terrified to pour any money in stocks, especially if they are close to retirement. What will it take them to get involved? Probably a much improved economy and lower unemployment rate. Perhaps the best hope for the stock market is that as the low interest rates stimulate inflation, money will begin to flow out of bonds and into stocks. What about the Federal Government? That's the biggest source of cash and liquidity, and they have certainly facilitated this rally. If you wonder why investors shudder whenever government officials mention "withdrawing liquidity," it's because that liquidity has formed the basis of the economic recovery. The United States government acquired trillions of dollars of assets and injected cash into the system. You know what that means: The U.S. Federal Government (and American citizens) are left holding the bag. What will happen to these assets. Will the federal government, as discussed, start withdrawing the assets by selling them? What will they do with all the junk on their books? My guess is they will continue to hide it. As we see below, the federal balance sheet is still growing, not shrinking. In short, the Feds control the market. That's what's scary about the market, and why I call it the Wizard of Oz market. It's not being controlled by market forces anymore -- it's being controlled by the man behind the curtain. My best guess is that whenever market swoons come, the federal government will print more money. The will sit on these assets for as long as possible, until they have boosted the system sufficiently by printing money and creating inflation. You heard about zombie banks in Japan, yeah?