Is Europe Considering "Le-TARP"?

The markets started out down a bit, but have since rallied back into positive territory. Yesterday's late day rally was quite impressive, and if the bulls can hold the line here, we could see additional short-covering add to those gains.

Although Asian markets were mixed overnight, Europe has rallied strongly this morning. The improved tone in Europe comes amid chatter that officials are considering ways to recapitalize the banks in the region. Le-TARP, anyone?

Last night, Moody's downgraded the debt rating for Italy, but it appears that this move was already baked in the cake.

In economic news, this morning's ADP Employment report showed that private payrolls increased by 91,000 in September, far better than the 45,000 consensus estimate. Also, the ISM Services index for September came in at 53.0, which is just slightly below August's reading of 53.3. The reading above 50 still represents expansion for the sector.

Commodities are mostly higher today, except for precious metals. Oil has rallied back to $78.50, while gold prices are just slightly down near $1614.

The 10-year yield is getting a boost to 1.88%; and the VIX has continued to mover lower after a dramatic reversal yesterday. The VIX is down another -4% today to 39.20, which is still a very high level but not as dramatic as the 45-46 readings experienced yesterday.

Trading comment: Yesterday we took profits on some of our index etf hedges, but we have not gone so far as to add to our long positions as of yet. I would like to see the market hold some support levels and prove that yesterday wasn't just a one-day wonder. The market remains heavily oversold, with recent bearish sentiment indicators at extreme levels. This does provide a good setup for a continuation rally, but sentiment readings are secondary indicators. We need to see strong price/volume action as our primary indicator.