Watch 850 On The SPX 500

Wells Fargo this morning gave the bulls some positive news as they pre announced better then expected earnings for their first quarter. Wells announced earnings will be way above estimates, but still down year over year. More on the smoke and mirrors job that Wells pulled off today in a later post.

But what cant be denied is definitely a positive bias to equities this morning. The markets seem to have found some footing the last 2-3 weeks on hope that 1st qtr earnings will show that companies are starting to recover. There is considerable cash on the sidelines, and its tax time, so the path of least resistance is up. Cant fight the tape currently, as the shorts are definitely scrambling to cover positions. The PHLX Bank Index is currently up 11% as the Wells news is lifting that sector.

DON'T FIGHT THE TAPE

The positives are the following:

1- GM situation will resolve itself very shortly
2- Wells Fargo giving an upward bias to the Financials ahead of earnings season.
3- The Market shrugged off a very bad Employment Report.
4- Goldman Sachs Earnings next week.
5- M&A Activity in distressed industries - Pulte buying Centex
6- Uptick Rule reinstatement
7- Retail Sales have been stronger so far this year
8- Government buying of Treasuries which is lowering Interest Rates Across the Curve.
9- Short Covering
10-Tons of Cash on the Sidelines looking to allocate
11- Seasonality...Its Tax Time
12- Technicals look extended but ready to break above resistance
13- Energy Sector has had tons of negative earnings revisions - bad news already factored.
14- Technology and Financials have lead the rally...Very Important.
15- Drop in Crude Oil has made the general malaise of the economy easier to take for consumers...as consumers are saving $16 Billion a month because of lower gas prices.
16- Volatility gauged by the VIX, has broken down, as people are not willing to take riskier negative bets.

All of this is putting in a better sustained bid on equities globally. Like I stated a few weeks ago, the 800 level for the S&P 500 was important technical barrier that had to be respected. The market cleared that level and then tested it on the downside comfortably. So the next obvious technical barrier is the 850 level on the S&P. If the market can close above this level, buy programs will kick in. There really is no resistance till about 900, which is 500-700 Dow Points on the upside. The indices are up over 2.75% today, right at the 850 level. There are people looking to take profits here at this point, will have to see if the bulls have enough resolve to push for higher prices ahead of a 3 day weekend. On the downside, if the market cant clear 850, we will trade back down to 820-825.

The odds of the market closing above 850 are very high for the following reasons:

1-Slow/Thin trading ahead of 3 day weekend.
2-Bulls seem to have upper hand over shorts
3-Better news flow

I would be remiss to add that this market has come under incredible selling pressure, and these type of stealth moves to the upside have happened before, only to see the market make even lower lows. The stock market before this latest move upwards had lost over $2.6 Trillion in value for 2009 alone, so there is considerable work ahead for the bulls.

The earnings picture is still cloudy as analysts are generally clueless to how to properly estimate quarterly numbers. The variance in analysts estimates for Wells Fargo alone leads me to believe that there is no consensus what so ever on the street. These are guesses, not properly thought out analysis.