• In fact, I suspect I should be getting more aggressively short.

Small to buy market on the close.

It was a great day for those who have picked up "bargains" earlier this week.

I've covered basically all my short positions Tuesday, and then took on trading long rentals Tuesday and Wednesday, so I feel fulfilled -- but I don't expect the rally to continue much longer. I maintain the view that the year's market top was established in August.  

I end the day short about 10% -- though I suspect I should be getting more aggressive.

Still, for now, I will await the inevitable compromise from Washington and will see if there is much more follow-through.

Thanks for reading my Diary and enjoy your evening.

• From none other than 'Downtown' Josh Brown.

I previously published the Comment of the Day.

Now, from "Downtown" Josh Brown, the Tweet of the Day:

• Rumors are circulating about an imminent deal out of Washington.

The S&P 500 put on another leg to the middle of my expected target range between 1680 and 1700. This has come after an unconfirmed story -- linked to a senior House Republican -- that a negotiated settlement on the debt ceiling is expected, and that the government may reopen as early as next week.

I have moved to 10% net short.

• The stock continues to trade poorly.

Apple (AAPL) continues to trade poorly on the heels of a China-based story suggesting iPhone 5c production cuts.

I am calling an audible and selling the balance of my Apple for a nice gain over only a few days, and I am taking the name off of my Best Idea List.

• The TBT is down on the day.

Big reversal in bond yields today.

The ProShares Ultra Short 20-Year-Plus Treasury ETF (TBT), which gapped higher  (I sold it this morning), is now down on the day.

• And the winner is....

We officially have a new daily column in my diary called "Comment of the Day," extracted from our comments section.

And this week's winner is, hands down, our own Tim "Not Judy or Phil" Collins who makes the following observation:

Last night, Robtri accused me of writing the bearish AAMC article over on Seeking Alpha (I didn't), but I do have a few other confessions to make:

1. I was the 2nd shooter on the grassy knoll

2. I secretly replace candy filled eggs with real eggs before kid's Easter Egg hunts

3. I will do anything for love, but I won't do that

4. I secretly root for Wile E. Coyote to catch the Road Runner

5. I plowed the Nazca Geoglyphs while drunk. I was trying to propose to my girlfriend.

6. I convinced the people of Atlantis that swim lessons were a waste of time.

7. When 4 out of 5 dentists agree, I'm the 5th dentist.

8. I peek on blind taste tests

9. I secretly replaced your coffee this morning with coffee.  Let's see if you notice the difference.

10. I'm Batman.

• It currently qualifies as a best idea.

I am putting iShares Russell 2000 Index Fund (IWM) short on the Best Idea list at $105.93 now.

• I sold some at $491.

I took small off of Apple (AAPL) at $491 just now, basically selling yesterday's long under $483.

• I shorted small at $115.85.

I reestablished my iShares Russell 2000 Index Fund (IWM) short (small at first) at $115.85.

I plan to scale into a larger short on any strength.

• I'm at an under 5% net short position.

With the markets at their intraday high, I have moved slightly to a net short position (under 5%).

• It will still be a rocky road throughout the balance of the year.

There are several possible outcomes to break the logjam in Washington, D.C. between now and Oct. 17:

1. A crack in the U.S. stock market could force action. (This is always a possibility.)
2. Boehner blinks. (A small possibility.)
3. A partial solution is offered if the debt ceiling is breached in which either Treasury payments would be prioritized or the president issues an executive order to lift the debt ceiling. (A low probability.)
4. A late-hour compromise on Oct. 16. (The highest probability and likely outcome.)

-- Doug Kass "The High-Drama Shutdown Showdown"

Last Thursday, I offerred the above outcomes to break the impasse in Washington, D.C.

Outcome No. 2 has come to pass,but as I mentioned previously today, it will still be a rocky road throughout the balance of the year.

• Here is what I am seeing around institutional desks on the Street.

One of the ideas in my "Suggestion Box" of a few weeks ago was for me to communicate where I see institutional order flows. So here you go.

Institutional flows are about 2:1 on the buy side and program (trend followers) are 3:1 on the buy side.

I am seeing a rotation in high-beta (the anointed ones) as hedgies reverse their previous defensive positioning.

Buying is in banks, insurance, defense, industrials, real estate, semiconductors and energy.

Selling is in utilities and consumer staples.

• 2.4 million shares were put up by Goldman for $2.94 a share.

Goldman Sachs puts up 2.4 milion shares of Chimera (CIM) at $2.94 an old favorite but no longer.

• Here is his take on Treasuries.

From The Lindsey Group's Peter Boockvar:

As the morning rolls on, Treasury bill yields up to 6 weeks out continue to come down. The one week bill yield is in by 21 bps to .27%, the 2 and 3 week bills are in by .13 bps and the 4 week bill yield is lower by 9 bps to .175. Also, the 6 week yield is down by 11 bps. This covers the 4-6 week possible debt ceiling delay. Assuming this deal comes to pass, we now though have to start looking at maturities past 6 weeks because if no progress is made in the broader budget talks in the time that was bought, we'll be having the same discussions all over again. Bill yields maturing in 7 weeks on are all jumping. In particular, the bill yield maturing on November 29th is more than doubling today to .11% from .05% yesterday. It's still pathetically low but the move is certainly symbolic of the markets skepticism past the potential temporary debt ceiling raise.

• The ETF is going back on my Best Ideas list.

I am putting Direxion Daily Small Cap Bear 3x Shares (TZA) back on my Best Ideas list at $23.25 now.

• As/if we move toward 1700, I will be moving back short.

We just hit the low end of my 1680-1700 objective for the S&P 500, so I have moved to market-neutral with an add of Direxion Daily Small Cap Bear 3x Shares (TZA) at $23.22.

As/if we move toward 1700, I will be moving back short.

• During the next leg higher (if it comes), I will move back to market-neutral.

I am sticking with my JPMorgan Chase (JPM) long rental and my Citigroup (C), Monitise (MONI.L), Altisource Residential (RESI), Northwest Bancshares (NWBI), Potash (POT), Imperva (IMPV) and Apple (AAPL) longs.

During the next leg higher (if it comes), I will move back to market-neutral.

• My net long exposure is just under 10% now.

I reestablished my Direxion Daily Small Cap Bear 3x Shares (TZA) long at $23.40 to bring my net exposure to under 10% just now.

• I am out of this rental.

I am seling my ProShares UltraShort 20+ Year Treasury (TBT) long rental, and I am no longer in my SPDR S&P 500 ETF Trust (SPY) long.

I am down to 15% net long.

• He belives that we have 'fallen down the rabbit hole.'

A little Alice in Wonderland from Sir Mark Grant:

"Of course it is," said the Duchess, who seemed ready to agree to everything that Alice said; "There's a large mustard-mine near here. And the moral of that is¿The more there is of mine, the less there is of yours."

-- Lewis Carroll, Alice in Wonderland

I believe this bit of superb wisdom explains several things. First and foremost it tells you exactly how taxes operate. Next it explains, precisely, the difficulties between the Democrats and Republicans in the United States. He wants, she wants, they all want and expect us to pay for it. You cannot even say, anymore, that you do not wish to pick up the bill for a dinner that you did not plan, did not choose the guests, are not invited to and where you are not welcome to dine. Oh the mad hatters say you get some tidbits of this and that from time to time and then they inform you that if you do not pay well then here comes the Red Queen and off with your head.

We have all fallen down the rabbit hole!

This morning there is a hint that America might agree on some short term funding solution. Equity futures are like catfish in the river and jumping higher, bond futures are on the banks singing the blues, the White Queen, Ms. Yellen, and her predecessor, the King of Tarts, will not stop pumping out the fabricated milk and honey anytime soon and the very odd croquet game continues. The rest of the world, the spectators for this match, applaud politely and, when asked, just say, "Too much!"

"You used to be much more...muchier. You've lost your muchness."

-- Lewis Carroll, Alice in Wonderland

It is probably an interesting point to consider if America has lost its "muchness." We did seem to have more of the stuff some years back. There seemed to have been some common goals and purposes when I was growing up but then I was at a tender age and being instructed though it seemed, at least, that people were more willing to accept what was handed out at the tea party back then without too much complaint. Now we worry if the tea is organic, the pastries vegan and if the crumpets are fried in oil or baked. It seemed so much simpler back then.

Whatever happened to peanut butter and jelly sandwiches?

It seems that some of America's cast of characters are regurgitating one of Alice's prime questions; "Who in the world am I? Ah, that's the great puzzle." They want my money, your money or they are quite willing to make new money to pay for anyplace that we might decide to go. There was a time, I had always thought, where the amount of money that you had determined what you could do or not do. This no longer seems to be the case. We are now in a make it, take it or bake it up fresh world.

The problem is this; if you keep eating things that aren't there, even if we are told all day long that they are, then eventually you become hungry and undernourished anyway. It is funny how this always seems to work. Even if we are told it doesn't matter.

Take some more tea," the March Hare said to Alice, very earnestly.

"I've had nothing yet," Alice replied in an offended tone, "so I can't take more."

"You mean you can't take less," said the Hatter: "it's very easy to take more than nothing."

-- Lewis Carroll, Alice in Wonderland

I am criticized, from time to time, for being overly cautious. I don't know; I make what I make, I watch the way they take what they take and you and I are not permitted to bake it up when we choose. That is another "off with your head" offense.

I can spend only what I have, they can spend my money, your money, not their money of course because all they live on is my money and your money and then, when cornered, they keep baking away. They will probably keep baking away for some time now as no one seems to know quite where we are going but we must eat, one way or another, in the meantime.

"My dear, here we must run as fast as we can, just to stay in place. And if you wish to go anywhere you must run twice as fast as that." 

-- Lewis Carroll, Alice in Wonderland

Please do not disparage me for being cautious. I can smell what is in the oven just like you but I occasionally open the oven door and peer at what is inside. Something they do not like at all but I do it nevertheless. What is being baked up is hardly the stuff of a square meal and I fear undernourishment. I remain cautious.

"The rule is, jam tomorrow and jam yesterday-but never jam today."

"It must come sometime to jam today," Alice objected.

No it can't," said the Queen. "It's jam every other day. Today isn't any other day, you know."

-- Lewis Carroll, Alice in Wonderland

• Here is how I am playing the next week to 10 days.

I want it to be abundantly clear that while I believe that we could see a near-term rally in the markets (coincident with a last-minute budget compromise), I am sticking with the notion that the U.S. stock market hit a high in August 2013.

Remember, after the expected rally, investors (and traders) face the uncertainty of corporate profits and sales, a profit margin for leading U.S. companies that is more than 70% above the five-decade average and still-elevated P/E multiples (particularly vis-à-vis the beginning of the year). We face a structural disequilibrium in the labor market, our middle class has gotten screwed by policy, geopolitical risks (forgotten over the last two weeks) are mounting, and getting back to my August top column, several other significant market and economic headwinds are clearly visible.

For most, a few-percent rally is not really worth the effort, unless you are swift of trading hand.

These sort of short-term moves are not for everyone.

For the average investor, I continue to endorse the notion of above-average cash reserves and smaller-than-average positions.

-- Doug Kass, "Just to Clarify" (Oct. 9, 2013)

I am expecting the market to rally irregularly over the next few days, with the SPDR S&P 500 ETF Trust (SPY) trading back into the $168-$170 area (close to the early-August high).

I plan to be a scale seller of my longs into this -- in fact, I halved my SPY long rental at $167.30 earlier this morning, and I just sold the balance of the position (because we can't predict the future with precision!).

I expect the market to peak a day or so before an inevitable budget and debt-ceiling compromise and then to sell off on the announcement as it becomes obvious that the agreement will likely be brief and incomplete, with many more fiscal deadlines between now and year-end.

As we move full swing into the earnings season, I anticipate that the market will have a downward bias (principally a function of an ambiguous profit picture and economic outlook), though it will be a fertile time for stock-picking opportunities (both long and short).

My guess is that November and December will bring on a range for the S&P 500 of between 1630 and 1700.

• Stephens reitierates Buy rating on Imperva.

Imperva (IMPV), yesterday's buy, is reiterated as a Buy at Stephens today.

• Through the technical lens of BTIG's Katie Stockton.

BTIG's Katie Stockton this morning:

Today's rally in the S&P futures generates a bulish short term crossover in the daily stochastics - once the stochastics get back above 20%, it'd be an oversold "buy" signal - initial cloud-based support is intact at 1649 (the equivalent level for SPX is 1658-1659, which could be preserved on a strong open).

• The firm put Monitise on its Conviction Buy list and expects a 94% climb from current levels.

This morning Goldman Sachs highlighted Monitise (MONI.L) as a Buy (and the current price as an excellent entry point) -- from both a trader's and analyst's viewpoints.

This should be helpful to our subscribers from a technical and fundamental standpoint.

Goldman trader's view:

The stock went from 60 to 50 purely on profit taking. It has been a pattern of recent trading to see in particular hedge funds take profits on "winners" and trim risk ahead of potential debt ceiling / US default (see for instance Facebook this week). A large UK stock portfolio was unwound also this week weighing on the UK eq market. He thinks low 50s is a good entry point, saw some buyers come in as we were approaching 50p, he'd buy here. Expect it to rebound sharply (as many other "beaten up winners") if / when the US situation get sorted.

Goldman analyst's view:

Fundamentals haven't changed, still looking promising, catalysts in the coming months are going to be (i) new contracts with Telco and Financial institutions, and (ii) technology improvement / market share gains, (iii) inclusion in FTSE-250 next year. The company management (and our analysts) are working hard on advertising the successes of the company and trying to broaden their image to "digital payment" rather than just "banking IT service", they're getting there, and the recent contract with Telefonica goes in this direction.

Monitise is on Goldman's Conviction Buy list with a target price of 1 British pound, representing a 94% upside from current levels. Monitise is well-positioned to be a key beneficiary of the positive dynamics in the mobile money market. With a strong pipeline into fiscal 2014, Goldman expects continued positive news flow around new customer wins and strategic partnerships.

Below is the firm's main points:

Explosive growth in smartphone penetration (70% by 2015E) is driving significant innovation and changing the way money is transferred and transacted in its various forms (banking, payments and commerce). With consumers led by the Millennial generation spending c.10% of their free time on a mobile device, the growth of 'mobile money' will only accelerate. Our analysts have examined the broader impact of mobile money in Europe:

• Across the key ecosystems, we believe that it will create an incremental €15 bn revenue opportunity (tech spending, micro merchants, mpayments) and drive revenue share shifts of €8.8 bn (interchange fees, mobile advertising) by 2017.
• Based on our analysis, the technology sector will be the net beneficiary of the changes brought in by mobile money as companies in various end markets retool themselves to reduce cost and provide an omnichannel experience. We identify IT outsourcing and micro merchants as the key incremental opportunities and estimate a €8 bn revenue opportunity by 2017. Our estimates assume that European payment vendors under our coverage can capture c.30% of this opportunity.
• We believe that Monitise (mobile technology platform) and AtoS (Processing, Mobility services) are best positioned to benefit from increased outsourcing and the platform development opportunity. We see Monitise (mobile platform technology), Gemalto (TSM vendor) and Wirecard (eCommerce platform) as best positioned to benefit from investments by mobile carriers due to strong end market expertise.

• Let's take a look at the overnight and early-morning price action in the major asset classes.

"Wisecrack that circulated the Street yesterday: 'The Washington Redskins are going to change their name due to negative name association ... to the Maryland Redskins.'"

-- Bill King, The King Report

The rundown:

• S&P futures are up 16 (signs of a thaw in Washington, D.C., discussions/impasse);
• Nasdaq futures are up 28;
• Nikkei is up 1.1%;
• China Shanghai is down 0.9%;
• European markets are up;
• euro is down;
• crude is up $0.40;
• gold is down $8; and
• the 10-year U.S. note yields 2.71% (up 5 basis points  day over day).

Worth mentioning:

• Yesterday was a flat day with a weak close in which Mr. Market just bent a bit but didn't break. Financials showed some life, which I termed as an upbeat forward signal.  Apple (AAPL) was a standout (up $5-ish and is up $4 in premarket trading on top of that move).
• Early this week, I covered nearly every one of my trading shorts, with the exception of Berkshire Hathaway (BRK.B). I added to my SPDR S&P 500 ETF Trust (SPY) and Apple longs (my favorite short-term play) and established a trading long rental in Imperva (IMPV). My net long exposure has been raised to about 30%.
• I haven't done anything thus far in premarket trading. Monitise's (MONI.L) shares have recovered a bit in London trading this morning (up 5%).
• The complacency I described in Monday's opening missive has created more attractive short-term trading opportunities with a 35-handle drop in the S&P futures earlier this week. As I posted yesterday the odds of a market top having been put in place in August remains intact -- I want it to be abundantly clear that while I believe that we could see a near-term rally in the markets (coincident with a last-minute budget compromise), I am sticking with the notion that the U.S. stock market hit a high in August 2013.
  
  Remember, after the expected rally, investors (and traders) face the uncertainty of corporate profits and sales, a profit margin for leading U.S. companies that is more than 70% above the five-decade average and still-elevated P/E multiples (particularly vis-à-vis the beginning of the year). We face a structural disequilibrium in the labor market, our middle class has gotten screwed by policy, geopolitical risks (forgotten over the last two weeks) are mounting, and getting back to my August top column, several other significant market and economic headwinds are clearly visible.
  
  For most, a few-percent rally is not really worth the effort, unless you are swift of trading hand.
  
  These sort of short-term moves are not for everyone.
  
  For the average investor, I continue to endorse the notion of above-average cash reserves and smaller-than-average positions
• As I mentioned last week, I remain bearish on the bond market. ProShares UltraShort 20+ Year Treasury (TBT) advanced by $1.20 a share yesterday.
• It is still my baseline view that an Oct. 16-Oct. 17 compromise will be made and that the market indigestion over the impasse has created an opportunity to get long over the near term. That said, the agreement will likely be brief and incomplete, with many more fiscal deadlines between now and year-end.
• Here is my interpretation of the September FOMC Minutes. Peter Boockvar's take is a good read as well. 

In the news:

• The Wall Street Journal -- "The Public Weighs In on the Shutdown"; "The Yellen Difference"; "Tony James: A Federal Default Invites Catastrophe."
• The Washington Post -- "George F. Will: When Liberals Became Scolds"; "Halting the GOP's Doomsday Strategy."

Some possible economic and earnings catalysts that could impact markets:

• Jobless claims (311,000 estimate), continuing claims (2.863 million estimate).
• BOE meeting (7:00 a.m. EDT).
• ECB's Draghi speaks in New York.
• U.S. import price index for September (8:30 a.m. EDT).
• BOJ's Kuroda speaks (Thursday morning).
• Fed's Bullard and Williams speak.
• Treasury Secretary Lew to testify before the Senate.
• G20 Finance Minister/Central Bank meeting (Oct. 10-Oct. 11, Washington).
• ECB monthly report (4:00 a.m. EDT).
• Merkel's CDU to hold talks with Greens on Oct 10.
• Retailers report September sales.
• Analyst meetings -- DDR, Jefferies, LINTA, LMCA, TRIP
• Earnings before the open -- IGTE, LNN, VAC
• Earnings after the close -- INFY, MU, OZRK, SWY