Let's face it: We're witnessing deteriorating conditions in every region, every market cap group, and every sector in the world with the long exception, strangely, of the U.S. dollar.

Yes, I said the dollar. Check it out for yourself. Every major market around the world is in a bear phase, including Europe, China, the United States, Latin America, commodities, techs, financials and retailers. And the one instrument of any type that is going up is the U.S. dollar. It broke out of its downtrend in July coincidently with the decline of crude oil and natural gas prices, and has been on a tear ever since.

What I think is happening is that hedge funds that were heavily long the commodities this spring found themselves unwinding their positions in July - and the move got out of control. Everyone wanted to sell at the same time, and there were no bids. This is the kind of fast-cascading value destruction that can destroy investors who are trading heavily on margin.

And that is likely why we learned recently that the big commodity trading fund Ospraie Partners, partly owned by Lehman Brothers (LEH), was forced out of business. The fund announced it had suffered losses north of 25% in August, which triggered an exit clause for limited partners, and redemptions were immediate and devastating. It's the liquidation that was forced by redemptions that probably caused the big downdraft in commodities late last week and early this week, and could very well continue until all of their positions are sold and covered.

In this environment, I think we need to continue to tread carefully. My Trader's Advantage subscribers have made some good money in recent weeks, all things considered, with some calls and puts, as well as with limited expectations on common stocks paired with tight stops. This is not a time to really think about holding stocks or options for long periods of time, since we're still hemmed in that narrow 3% to 5% box. Frankly, I don't think my strategy is going to change much going forward--at least for now.

In the meantime, stay alert and I'll be back with more developments as they unfold...