The S&P 500 has been trading straight up after gapping up this morning. This is a classic example of how underinvested bulls and overly aggressive shorts can generate some impressive momentum. The Italian bond issue yesterday caused quite a few folks to believe that it was an issue that would have some lasting impact. They didn't think it would be brushed off so quickly and easily.
Once it became clear that the opening gap was going to hold there was no choice but to cover some shorts and look for long exposure. The longer the market holds now then the more performance anxiety will kick in.
One of the ironies of the Italian bond issue was that it helped to show that US bonds are still the safest place in the world for capital. Interest rates dived, not because of fear of an economic slowdown or a bond contagion, but because there is such strong demand for US government bonds.
Not only is that good for the bond market but it gives the Fed some additional wiggle room. With the ten-year yield under 2.9% there isn't going to be any rush for the Fed to raise rates quickly. They wil raise in June as they have indicated but then there won't be much pressure after that.
This market was able to shrug off the Italian bond issue because the economy is strong, inflation is low and interest rates are not going up quickly. The macro-economic support is there, although the bears keep trying to come up with some good argument about why doom is imminent.
I'm trying to ride longs as best I can but have taken some partial gains in big movers I listed earlier. I wil be looking to make some buys into the close.
The S&P 500 is now back above where it closed on Friday. It is as if Tuesday never happened which is an indication of a very healthy market.