After a weak bounce Monday, a gap up open this morning caught a large number of market players out of position for further strength. When the short squeeze didn't reverse quickly, the scramble for long inventory was on. The action this morning was a classic example of how vicious the upside spikes can be during a downtrend. We went straight up all morning without a single dip.
The market finally did pause at midday, but by then the media was practically euphoric over the possibility that Greece would pass some austerity measures. I doubt anyone still believes that Greece wasn't going to be bailed out, but it is easy and convenient justification for a strong day.
The Greek deal is a sideshow and does little to resolve the foundational problems in Europe. I believe the real driving force today, and what helped to rally the euro against the U.S. dollar, is hope that Fed Chairman Ben Bernanke might make some hints about some form of Quantitative Easing 2.8938378735 tomorrow. There has been more and more talk that the Fed is in a position to continue to run its printing press, and any such hint is going to ignite the bulls.
If Bernanke doesn't throw the bulls a bone tomorrow afternoon, I'll be looking for the bears to get busy again very quickly, especially if they can also generate a little "sell the news" action on some positive Greece news.
We have a pretty good countertrend bounce going, but the bulls will face some hurdles after the Fed news hits tomorrow. If they can maintain these gains for a few more days, it is going to create some real performance anxiety, especially with the end of the month coming. But the technical setup is supportive of the short side, and the way the news is hitting probably is also.
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