Economist John Kenneth Galbraith once wryly observed: "The financial memory is very short."
If anything, it's gotten even shorter over the past few months.
Last Monday, I wrote how the S&P 500 had fallen for seven straight days, dropping 7.9% since Nov. 15, a period that included the worst Thanksgiving week decline since 1932. By Friday's close, the S&P 500 was up 7.4%, clocking one of its best weekly gains since 2009.
The good news was that my recommendation last week -- the ProShares Ultra S&P 500 (SSO) -- rose 15.1% over the past five days. Add that to the 14.6% gains in the ProShares UltraShort MSCI Europe ETF (EPV) that I recommended the previous week and it hasn't been a bad two weeks.
But if you think last week's exuberance signals the all-clear for the markets, then you think this market is much less bipolar than I do.
With Europe's fate far from resolved, the market's manic swings aren't yet in the past. By the end of this week, when we get yet another unsatisfying bailout plan from Germany's Angela Merkel and France's Nicolas Sarkozy (aka "Merkozy"), it might be time to put that position in EPV back on.
But not quite yet.
And that's partly because I don't see enough extreme sentiment from either the bears or the bulls. That said, if you put a gun to my head, I'd say we are due for at least a short-term correction for a couple of reasons.
Wednesday's surge in the S&P 500 reminded me of the Oct. 27 explosion that lifted 94.5% of stocks above their 10-day moving average. Wednesday's equivalent number was 93.6%. What happened the last time? Stocks went on to tumble more than 10%. If that isn't a sign of how quickly sentiment can turn in this market, nothing is.
If you're a chart reader, the situation doesn't look much better. The much-followed "triangle" in the S&P 500 in November should have led to a breakout to the upside. Instead, it went in the opposite direction.
This failure to break out to the upside, combined with a tendency for weakness following Friday's nonfarm payroll report, suggests a one- to three-day pullback is likely this week.
So what's my recommendation?
Sell your position in the SSO to lock in your 15% gains from last week's surge. Otherwise, I'm sitting this week out.