Market Adding To Its Gains

The market has built on its early gains, and still trading near its highs for the day. The SPX has broken above its 50-day average, a bullish sign. It's next resistance level is its overhead 200-day near 1265.

Breadth is very solid, with upside volume swamping downside. If we can stay at these levels, or rally more into the close, we could get additional short-covering as a boost.

Sec. of State Rice made a surprise visit to Lebanon, which traders are hoping may lead to an early cease-fire.

Bearish sentiment is still running at extreme levels. Last week, the AAII survey showed more bears that any time since the crash in 1987 and the Gulf War in 1990. That's a lot of bears. The spread was also negative for the 10th consecutive week.

The 10-day put/call ratios are als back toward the high end of their recent ranges, which means that a lot of bearish bets have been re-loaded. The number of people betting on a rally probably has declined in the last couple of weeks, which from a contrarian perspective could make it all the more likely.

If today's volume can pick up, we could even get an accumulation day out of it.