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Understanding The Market Rally And Profiting From It

|Includes: SPDR S&P 500 Trust ETF (SPY)

 It did not take a rocket scientist to understand a rally was likely on the first trading day of 2011. A classic gap and go took place as the SPDR S&P 500 ETF (NYSE:SPY) trades at $127.40, +1.65 (+1.31%). The reasons behind a likely rally are simple. First, new money flows into the markets based on the start of the first quarter as well as new contributions to retirement plans at the start of the new year. Second, bullish sentiment has only been building as the Federal Reserve continues to flood the markets with liquidity to create an artificial asset bubble. Third, the Federal Reserve continues prop the markets up using POMO (permanent open market operations). Combine these all with a light volume day and there was the making of a massive rally.  This may last a couple days but should subside as volume increases and new money flows slowly dry up.

Big winners of the day include Exxon Mobil Corporation (NYSE:XOM) as oil continues to move higher on global optimism and, Inc. (NASDAQ:AMZN). The rally today is broad based.  Commodities, banks and technology are all soaring. There will be significant shorting opportunities in the next week or two but patience is key as new money flows into the markets.

Gareth Soloway