European rumors were flying this weekend and during the day today. Most were unfounded like the Italian newspaper rumor that the IMF was about to bailout Italy. This was later denied by the IMF. You would think that markets would back off by the denial but they managed to stay at their peak.
CNBC spent all day trying to figure out the reason for the rally but never really settled on anything. What it amounts to is that the rumor started the rally and most likely short covering kept it at these levels. We had a modest gain in existing home sales but the modest gain came after downward revisions and was paired with falling prices. So that wasn’t good enough to keep us here. Then it was attributed to European leaders “adjust” euro funding rules. I think the thought that Europe will get out of this without anything short of printing or a full on handout from another country has already been proven with the reaction to the IMF “news”. Then there was holiday shopping weekend and I just don’t believe the numbers considering unemployment, savings rates, credit, and the like.
You decide if you want to buy in to this. I honestly can’t tell you that this will continue or fizzle, at this moment. We do have some pretty heavy resistance to get through coming in at the moving averages and the psychological level of 1200 (on s&p). it should also be noted that we did stop the advance right at the 10 day EMA and have both the 20 and the 50 coming in around 1200 which is just about 1% above were we are right now. I don’t really see anything that could keep this rally going right now and hence will think of it as a contra trend.
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