Market Rallies, Banks Slide
The market zoomed higher yesterday and volume levels rose. The bullish action was the product of two things.
First, SPX has extremely strong support at 1115 and 1100; the bears need a Greece failure, or something similar, to take the index below that support zone.
Secondly, rumors from reliable sources, like Geithner, have surfaced that European governments will step up their response to their region's debt crisis.
With the perceived support of policy makers the market popped right back to where it was before the sell-off last week. But as I have cautioned for the past few months, SPX needs a big reason to climb over 1250. And 1197 is going to be staunch resistance too.
I do not think a European bailout package is a compelling reason for the indices to race higher for an extend period of time.
I do believe, however, that a bailout in Europe would put a lot of cracks in the resistance zones, which would pave the way for SPX to sustainably move beyond 1250. Then with solid third quarter earnings in three weeks, the market would be in a great position to make a strong push beyond that sturdy resistance.
The combination of a bailout and good earnings would very likely provide the bulls with the steam to rally to the spring highs.
I don't like buying rumors. And it's annoying that the market is so heavily dependent on political statements and shifts lately. But as long as 1175 is held by the bulls a rally to 1250 resistance is probable.
In the near term, the indices are stretched. I find it unlikely that the bulls will be able to take out 1197 and 1220 this week before a pullback.
And you should be looking to go long near 1155 or 1175. Based on the weakness the banks showed yesterday, a pullback in the broad market is likely right around the corner.
