Just End Of The Month Markups; Or Maybe The Real Thing?

China bulls vs. Europe bears and market mechanics? There's a claymation, tag-team death match, with the bears having an edge on most days -- but not today. That's why we had the biggest up day in 10 months.

If you look at your screen today, everything that's roaring is totally China-driven: minerals, mining, mining equipment, energy, chemicals, and tech (that's Asia, especially semiconductors). The rest totally came along for the ride, including the financials, which I regard as DUDS that are going up less than they came down.

But Europe's credit woes haven't gone away; they just aren't able today to upset the China applecart. That could be tomorrow's business.

Chinese economic growth can offset European economic weakness. But China can't offset the systemic risk of Europe, which is in hiding today but hasn't gone away. The economic-growth risk can take us down to Dow 9500. Systemic failure, however, takes us down to the low 8000s on the Dow.

I like China. I believe India and Brazil can come roaring back, But I know that the credit risk of Europe is a huge stumbling block that can only be removed if there is unity in Europe, and we don't have that yet. If you layer on the worries about whether our market is working right (the flash crash) and factor in the exodus of the individual investor, then you get a market that is simply rallying because it is oversold, and the bears pressed their bet too far.

That's why I remain cautious; and own all AAPL - an extremely cheap stock by the way. If that systemic risk comes off the table, I will change my view and my caution. But not until then. A huge up-day does nothing to change that.

Further, the weak close on Wednesday was a trap for the bears, who were caught out of position when China denied rumors that it was dumping European debt. We gapped up big and, after some minor hesitation, we slowly, but steadily, ramped up the remainder of day. We even managed another upward spike at the close to breach 1,100 on the S&P500.

Although breadth was exceptionally strong, volume was mediocre. But that tends to be a consistent pattern in this market ruled by machines. Oil stocks were leading early in the day, but weakened following comments by President Obama. However, strength in steel, coal, various commodities, retail and regional banks more than made up for it.

It certainly was a good day for the bulls, but the more important issue is whether it was the start of new uptrend, or just another good-sized, oversold bounce within a major downtrend. At this point, the S&P500 is right around its first important technical hurdle, at 1,100-1,104, which is the 200-day simple moving average. There is still plenty of overhead resistance to deal with, but the bulls put some points on the board today and have some momentum. Counter-trend bounces can be fast and furious, so you have to give them some room to run. We've had two failed bounce attempts already this week, and that may have served to shake out the weak hands.

We have a three-day weekend coming up, which means we will have thinner holiday trading tomorrow. Typically, market players are in a good mood as they look forward to the break, and we should have a bullish bias to the action. Then again, I'm sure the bears are going to be looking to remount shorts at some point, though I expect they will stand aside until next week......

long AAPL