Apart from the market squeezing me out of 2/3 of my day's profits in the last 5 minutes (and then coming right back down to where I needed it to be), there were some interesting things to note in Friday's trading.

It was an options expiration day, which can and often does cause a lot of volatility in the last hour of trading...as if we haven't already had enough of that.

The S&P 500 went up about 50 points, or about 6.5% in the last hour of trading. The Dow went up similarly, going from about 7500 to just over 8000.

It was a remarkable (and painful, for the last 100 points in the Dow) run-up, but not very surprising given the thin trading and oversold conditions we came into the day with. In addition to options expiration, the rally may have been triggered by the announcement that Barack Obama has apparently selected NY Fed President Tim Geithner to succeed Hank Paulson as Secretary of the Treasury.

What I thought was interesting was the very small rise in government debt yields (i.e. drop in prices), considering how much those yields fell yesterday when the stock market made essentially the opposite of today's move, falling from about 8000 to about 7500. Thursday, the yield on the government's 10-year note fell from 3.40% the prior day to about 3.14%. Friday, that yield only went up to just under 3.17%

Similarly, the rate on the 13-week T-Bill, as represented by the IRX, fell on Thursday from .065% to .005%, as I mentioned in Friday's note on these pages. On Friday, that rate only increased to .01%.

What that says to me is that the stock market's rally was "technical" and not a sign that financial markets suddenly have faith in credit markets or the economy. Some closed-end debt funds I own were down on the day, reinforcing these thoughts.

The government bailout appears to have failed in terms of easing anything but bank-to-bank lending. That's better than nothing, but the real risk now is that government will step in to force banks to make loans, possibly even specifying terms of the loans such as capping interest rates (as Senator Christopher Dodd is already rumored to be proposing.)

This sort of action will simply prove right those who said that the real downside of the bailout is not that it won't work but that it will get the dead (and stupid) hand of government involved in areas in which politicians are notoriously ignorant.

In summary, Friday's market rally was a lot less about hopes that the worst is over for the economy and more about options expiration. I continue to be essentially neutral on the market, thinking that we are now, at 8,000 in the Dow, roughly in the middle of what I expect to be a two year trading range of maybe 6500-9500.