Technical Rebound or....

..something else?

Market squeezed higher today after a few days of dramatic decline.   Perhaps, looking back, it's inevitable that this market would rebound after being sold off for that many points and days.   There was really no real news worthy catalysts today (Bernanke‘s Q&A did give clarity on stress tests/ preferred shares), so we have to attribute the rebound to the premise we alerted early in the trading day.."technical oversold bounce, short covering, Banking Index solidifying last few days, while SPX floundered.    The only question is the volume on the way up today.  Was it sufficient to signal a successful test of November lows. 
 
Ideally, if there's some sort of detailed response from the Fed with regard to the financial rescue plan, things would feel much more comfortable at the current level.  What's good about today's rally though is that it's led by the financials.  The $BKX index up 3 points.   From the look of it, it does feel that the policy makers will NOT let the financial system collapse due to either Citi, or BAC or any other institutions in question.  "We don't need majority ownership to work with the banks" and stabilize them…... "I don't see any reason to destroy the franchise value..“, Bernanke.    At this point, we just don't know what exactly is going to get done.  We chased some financial names today at a very decent price.   We are still only sticking to the ones that market favours such as GS MS NTRS JPM  etc.   Most of the other financial names though, including insurance co., are still off limits to us as they are mostly speculative trades.   Commodity stocks, oil included also had a rebound today following the market tape.

Market did not quite hit SPX 780 -(SPX 785cash, the overnight recent high) and this might be the minor resistance in the coming days until an attempt at SPX 800 mark.  It's NOT unrealistic to expect that the market will try for SPX 800 tomorrow even, but that would require some timely positive newsflow overnight/ premkt.    Given the circumstances, we have held almost all of the stuff we purchased today and recent days .."We are buyers at the current level and lower.." and are willing to hold till we give the SPX 800 a shot.   That would be a substantial 7.5% lift from these recent lows.    If we do pull back tomorrow, we won't be hesitant to buy on weakness as once again traders will be eager to buy in front of the recent low.    Also, the probability of positive news from Washington in the coming days is very high at this point.   Either way we look at it, it does feel we'd more likely rally off positive catalysts than getting sold down off fear.

As far as plays wise, we are concentrating on the ones that are driving the rally. Yes, it means the financial names we mentioned above as well as SPY/SSO.  The commodity sector that seemed to enjoy this rally as much as the financials was the Agri. sector.  We like POT/AGU  at this point if market keeps the upward momentum.   We’re still negative on the shippers, steels as overnight holdings.

It's only Tuesday, but already it feels like a turning point as far as recent trading goes.  Come think of it, we aren't thinking in a fantasy world, and all that's missing now is a piece of legitimate news (positive) from D.C.