Rumors Are That We Will See Changes In Mark-to-Market Rules

The market rallied sharply again yesterday, after the market got reassuring news that several major banks have been profitable so far this year. Citi (C) indicated that it will not need any additional government capital. This helped the financial stocks soar.

There is also a lot of hope surrounding both the mark-to-market accounting rules as well as the uptick rule. The SEC chair said she is hopeful that something can be done with the uptick rule, like reinstating it, which should help ease the speed of market declines (at least in theory). And there is also chatter that we will see meaningful changes in the M2M accounting rules, at least that's what the FASB executives told Congress yesterday after getting grilled in public.

The market has had a sharp 3-day bounce, so a bit of rest would not be surprising. The S&P 500 rallied right up to the level of its November lows (742). A moderate, low volume pullback from these levels would be textbook bullish action. All past rallies have quickly given back all of their gains, so a change in the action going forward would be noticeable.

Asian markets soared last night, led by Japan +5.2%. The dollar is up a little bit again today, but so are most commodities. Oil is up near $47.50. The 10-year yield is slighly lower to 2.85%. And the VIX tagged its 200-day at 40 and has bounced higher to 42.90 (+4%). I would expect the VIX to bounce from this support before eventually breaking below its 200-day, which would be very bullish.

Trading comment: Sentiment is hard to guage here. There are a lot of people who merely think this is a bear market rally, but there are also a lot of people with too much cash on the sidelines, looking to get in and participate. This is why any pullback could be brief. Further rallies next week will lead to more short covering, which could be exacerbated by options expiration next week. At least that's the setup.

I did not add any longs yesterday. I am still looking to do so on any pullback. At this juncture in the market, I am still looking to play the longside via etfs. The upcoming earnings season could be dicey, so I want to manage my risk carefully. But I am getting closer to the point where I think many of the prices of individual stocks will be offering one of the best buying opportunities of my lifetime. Like always, timing is key.