Stocks traded dramatically higher last week in response to a stunning advance in the U.S. dollar and a sharp decline in crude oil and natural gas prices, ending with an Olympian 302-point long jump on Friday. Yet that has been followed with a couple of triple-digit down days this week, taking us right back to the levels of last Tuesday.

You just have to shake your head at the tremendous volatility that we have seen lately. So what does it all mean?

It’s a bit hard to see through the fog of war, but the action continues to validate my forecast that we’re on a very bumpy journey higher toward the 1,335 area of the S&P 500. It’s like a ride on a mountain road in a four-wheel-drive vehicle with bad shocks. We’re getting jostled around like crazy, but slowly we’re rumbling higher.

I do still think that we’re headed for a cliff at the top of that mountain, but we’ll leave that subject for another day.

The key thing you need to understand right now is that the recent decline in crude oil prices was not the main event. It is just an effect of the incredible jump in the value of the U.S. dollar, which this week completed its best rally in a five years.

The buck is rallying because traders around the world are coming to the realization that as tepid as the U.S. economy may be, it’s better than much of the rest of the world. New data this week revealed that several countries in Europe, as well as Australia, are sliding quickly into a credit-led recession.

When the dollar on Friday jumped three cents again the euro—a number that doesn’t sound like much, but is huge in the currency world—the crash in commodities regained momentum. This is because, as you probably know, most commodities are priced in dollars and thus as the greenback becomes more valuable the amount of money required to buy them shrinks.

Crude oil has fallen to the $112 mark, copper also sank to a six-month low; the Baltic Dry Index, which tracks ocean shipping rates, has declined by 30% over the past month; and base metals lead, nickel and tin are all down hard.

There’s an old saying that copper has a PhD in economics. This means that when the red metal’s price rises or falls, it usually forecasts a change in trend in the global economy. With copper down so much lately, it seems that Dr. Copper is saying ixnay to world growth. Given the matrix of data, then, it’s hard to escape the view that we’re headed for a synchronized global recession.

Every G7 country’s stock market is now in bear market territory or close to it, and Brazil, Latin America and Russia are on the verge of following the United States, Europe and China into the growl zone.

In one of my presentations at the Money Show in San Francisco on Friday, I showed charts which make the case quite emphatically, and the roomful of sophisticated investors seemed pretty shocked by the news, which makes the finding all the more valuable.

Only two sectors have looked lately like they had a shot at avoiding a bear market because they had been holding up quite well…

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…gold and consumer staples.

When virtually every region, every sector and every market cap group is in a bear market, it’s really hard to make money in individual stocks. So if you feel like you’re really scuffling now with picks you have developed yourself or taken from other advisors, don’t beat yourself up. It’s not just you or your ability to choose securities adequately. It’s much bigger than that.

We’re on the down stroke of a major global bear market cycle that is just getting up to speed. I’ve been saying for weeks, you should probably be raising cash during strong weeks like this and just hunkering down for the market winter so that when the next springtime comes, whenever it may be, you will have plenty of capital to deploy. (See also: "Data Points to a Recession.")

I hate to sound so dire, but the data seems to show pretty clearly that the move up from the July low was likely just another in a series of nice but meaningless rallies.

According to ace technician and historian Paul Desmond at Lowry’s Reports, bear markets over the past eight decades that have produced at least one two-month rally usually went on to produce a number of similar rallies that lasted one to three months followed by new bear market lows.

The current rally, which has lasted almost a month, is therefore right in line with the average bear market "correction" in terms of length. (To learn more about how to protect yourself in a bear market, check out: "Users Manual for a Bear Market.")

Paul points out that the 300-point rallies in the Dow last week were not unusual for bear markets, pointing out that they were the seventh and eighth times that the big index has gained 300 points or more since the market peaked in July 2007. Each of those previous cases ultimately resulted in new bear-market lows.

Paul observes that in terms of the number of advancing issues, points gained an up volume for the New York Stock Exchange, the big rallies of the past week were actually the weakest of the eight. So it’s hard to imagine that if six stronger rallies didn’t initiate a new bull market, two weaker rallies would launch one. Plus, while buying pressure has increased, selling pressure has not decreased, suggesting that sellers remain active—pushing out stock aggressively into these up moves.

And finally, Paul notes that in the 2000-2003 bear market, the Dow Industrials rose 300 points ore more 16 separate times, and all were followed by new bear-market lows. In contrast, the bull market that ran from March 2003 to July 2007 did not generate a single 300-point rally in the Dow.

So putting it all together, it looks like last week’s two big rallies were just another couple of opportunities for major financial institutions to dump stock at higher prices—not trend changers. (See also: "August Could Be The Tipping Point.")

I keep hearing that people think that sentiment is low, pessimism is rampant and that this just must be a great time to buy. But these people cannot have really been paying attention in early October 2002 or mid-March 2003, or October 1998, because back then the feeling was really that you just had to get rid of everything immediately.

Right now, this back-and-forth action just makes me think that there is some money on the sidelines that is getting put to work, but bears are taking advantage of that optimism by slamming it to the ground. It reminds me of the old phrase, "money to burn will find a match."

In Trader’s Advantage, we are exploiting the current environment by trading actively from both the long and short side of the market, with a recent emphasis on being short financials and long metals and food.

We’ve made plays netting over 65% in Fannie Mae (FNM) puts in the past week, 200% in Hershey (HSY) calls, 40% in Newmont Mining (NEM) calls and substantial amounts in the common stocks as well.

The bottom line: Don’t hide from the volatility—profit from it.

Jon Markman is editor of Trader’s Advantage and a regular contributor to InvestorPlace.com. To get this type of actionable insight from Jon and other InvestorPlace Media experts go to www.InvestorPlace.com today!