The action today was a particularly good example of how emotion can take hold of the market. We started off with another Monday morning gap up and, after a brief attempt by the bears to short the move, it was off to the races.
The bears were focused on the choppy, fairly narrow, action last week and, more importantly the inability of the S&P 500 to take out the resistance at the August highs. Since we were a bit overbought and seasonality is negative, it seemed like a good spot for the market to pull back.
Unfortunately for the bulls, the buyers didn't care too much about logic today. CNBC helped to stir things up with its non-stop promotion of a town-hall meeting featuring President Obama. At best, the biggest news from that event was that the president didn't say anything particularly critical about Wall Street for a change. For some folks, that was enough reason to buy, especially since the market was running away without them anyway.
Another faction of folks where pointing to big, open-market action by the Fed today. With the possibility "quantitative easing" being mentioned in the Federal Open Market Committee's statement tomorrow, the old adage about not fighting the Fed was definitely in play.
Whatever the cause might have been, the end result was some good-old-fashioned momentum. It was downright frothy, especially in the final hour of trading, but volume was disappointing with less than 2 billion shares traded. Low volume hasn't mattered in this market for a while, so I'm not going to be too critical of it.
Last week, we had a big gain on Monday and then the market didn't do much for the rest of the week. We are now above the 1130 resistance, so the technicians will be watching that level.
This market action is very similar to some of the other moves we had back in March and April of this year (as well as in October and November of 2009). Those V-ish moves were driven by a flood of liquidity, and the focus on the FOMC statement tomorrow is going to bring that issue to the forefront again.