Call it a failure of the imagination, but we’re hard-pressed to believe that any sane investor would be buying shares these days. Sure, there are always going to be a few ultraviolet-sunny, Kudlowesque optimists capable of deluding themselves into believing that a real estate collapse, hundred-dollar oil, a recessionary surge in unemployment, rampant consumer inflation, terminally diseased bond markets, a precipitous slowdown in manufacturing, and predictions of minuscule or even negative GDP growth for the next few quarters don’t really matter. But how many of those guys could there be?  Even with CNBC’s A-Team imparting a stridently bullish spin to some ginned-up numbers from the Commerce Department, and news of bin Laden’s capture on the tape, they’re probably wouldn't be enough bulls to buy a piddling 50-point rally in the Dow. No, what rallies we’ve seen can be attributed almost 100% to short-covering, with a smattering of buying from patriotic Americans and shady types acting on hot tips. But real bulls investing in America’s future?  You’ve got to be kidding.

Watching yesterday’s ups and down on Wall Street, we initially thought the rallies seemed too subdued to have been caused by short-covering. But the spirited, nit-witty frisson in the final minutes of the session (see chart below) convinced us that that’s what was going on.  The gap-up opening should have alerted us to the nervousness of shorts, since it occurred on vaporous volume and lasted all of 20 minutes. A 140-point sell-off followed, but it dried up after running into support from a key low made in late November.  The rest of the day was spent in the throes of tedium, with the Dow plying a 100-point range, then finishing with bears doing what they do best: ignoring all the bad news to fixate on how viciously the market might rally the next day for no good reason at all. For the record, we naked-shorted some January 130 Diamond calls on the close, posting the trade in the Rick’s Picks chat room a few minutes before the final bell.