With volatility increasing by the day in markets that have already drifted into uncharted waters, it is worth taking inventory of the current crises that we are facing. Will the Emergency Economic Stabilization Act of 2008 (EESA) provide the help that we need to rite the ship? Is it even possible to make money in a market like this anymore?

EESA

First things first, lets talk about the EESA and where that will likely lead us. To be frank, the timing of this credit and housing crisis couldn't have been much worse. We are still in the midst of a war in the Middle East, with much of the government's capital being spent there to protect our service men and women. The root of the economic problems stems from credit and the access to capital, and the US is running a much publicized budget deficit of around $400 Billion. So not only does the average consumer and business have a capital shortage, but so does the US Government.

Further complicating the issue is the pending election that is only about 5 weeks away. We have been flooded with images of every politician in Washington as they lobby to have the needs of their agenda met. The majority of our lawmakers have no idea what dire straights the US economy is facing, but they want to say that they were a part of the process, for better or for worse.

Bernanke and Paulson: Heroes?

I never thought I would be saying this 6 months ago, but thankfully we have Fed Chairman Ben Bernanke and Treasury Secretary Hank Paulson there to stress the importance of this bill. If you saw any of the testimony that they had to go through last week, you have to feel for these two guys.

So why are Bernanke and Paulson the heroes here? Well once the government buys these bad bonds, they won't be holding onto them forever. They will likely work to create a standardized marketplace for these securities to trade, similar to the NYSE or CBOE. The market will then set a fair price for these bonds and then the liquidity necessary to trade this paper will return. At that time the US Government will be able, if they choose, to sell the bonds back at a premium to the price they paid, pocketing the difference. This profit will then go back into the treasury to replace some if not all of the money spent in this process.

So if this bill is signed into law in the next few days, are the problems fixed? Not really; more like far from it. But it appears that the market is inching ever so closer to a bottom before a big rally is in store.

The VIX continues to be at extreme levels and climbing as American's continue to be hit even harder by the amount of wealth that has been lost in the past 18 months. As you can see from the chart below, the VIX has not been at levels like this since October 2002, almost 6 years ago exactly. The S&P 500 chart below the VIX shows the performance of the S&P 500 during the same time period. This chart shows that soon after the big spike in the VIX during the second half of 2002, we experienced a tremendous Bull run from 2003-2007. Could history be ready to repeat itself?



The bearish trend might not end until the end of the year, but when you reach waters that are this uncharted, anything is possible. What is certain is that our proprietary indicators and trading techniques are profitable in any market, especially this market. When volatility is this prominent, wild swings in stock prices are made possible. These price movements allow us to make large profits in shorter amounts of time, if you know what you are looking for.

Price Headley is the founder and chief analyst of BigTrends.com.