Today the market gaps fueled by higher than expected growth in Chinese GDP. Emerging markets, commodities and Brazil lead the rally today on these news.
Also today we got a positive Spanish bond auction.
The market has completely ignored the S&P downgrades on France, Austria and the ESFS bailout fund.
I think is a positive that the market stops paying attention to this rating agencies which have shown during the last 5 years or so to be most of the time wrong and late in ther risk classifications.
The market has given up a big part of its gap up gains but the leading stocks and NASDAQ have held firm which shows good overall strength.
The S&P 500 is starting to get overbought but looks like it could hit its previous high at 1350 after a consolidation or pullback.
As you can see from the charts the market is getting overbought and it will be hard for it to push higher unless we get a very positive catalyst.
Since we are in earnings season, better than expected earnings could propel it higher.
If not, we are going to probably consolidate here or pullback for a while.
Also, intermediate term sentiment, as measured by sentimentrader.com is at a very bullish level which normally causes a decline or at least a period of consolidation.
Another thing to watch is the EUR/USD. We got a failed rally attempt last week when it recovered its lower trendline of its downward channel. The bulls got hammered on the S&P downgrade news.
Today it is once again trying to recover its lower trendline. A close over 1.2760 should trigger a short covering rally.
As you can see in the chart the Commitment of Traders shows that speculators are historically short while commercial players are extremely long. There is a lot of "fuel" to generate a powerful short covering rally which should be bullish for the markets.