Good Start To The Week

Although they finished off the highs of the session, the major indices kicked off the new week by posting solid gains and moving past short-term resistance levels. By the close, the indices were able to add an average of 3.8% on breadth that was just better than 3:1 to the positive. Financials and materials led to the upside, and while each of the major S&P sectors closed in the green, the so-called defensive areas lagged.

Last week’s encouraging response to a bevy of bad news had put the market in a position to make some technical progress, and this weekend’s announcement of Obama’s stimulus package helped to make that happen. The test, however, will come once we get a pullback. Will investors continue to buy weakness? So many times over the past year, every instance of strength has been used as an opportunity to sell and/or short, and I’ll be watching to see if that tendency changes.

I'm optimistic that we could see some upside follow-through into the end of the year, but that doesn’t mean to go hog-wild.