As we men­tioned Fri­day, it's not so much the news but the reac­tion to the news that was impor­tant to take note of.  Mar­kets shook off bad news quite eas­ily, and we are see­ing the cel­e­bra­tion of that trans­lated in this morning's gap up.  Thus far 2012 has been an inter­est­ing year at the index level.  Aside from 1 ses­sion (Friday's) we've only seen com­pletely flat opens – with very lit­tle volatil­ity all ses­sion – or gap ups (this morning's will be the third).  Gap up, flat, flat, flat flat, gap up, flat flat flat, etc.   And one ses­sion all year that dif­fered from that pat­tern.  Interesting.

While almost the entire rally has been con­tained to 3 sec­tors, we have to look at the indexes and respect the move­ment.  As we exited 2011, it was a coin flip in terms of the next move – there was no clear set of sig­nals at the time.  How­ever, over the past few weeks we see there has been a break to the upside, and some inter­me­di­ate term indi­ca­tors are flash­ing far more pos­i­tive.  This morning's gap will take the S&P 500 over Novem­ber highs cre­at­ing a 'dou­ble top break­out'.  Fur­ther we can see an inverse head and shoul­der that has resolved to the upside with the action of the past 4–6 ses­sions.  This is gen­er­ally quite positive.

We can see the next major resis­tance area is not until 2011 highs of 1350ish, which is about 4% higher from where the index should open.

Now with that said, the move since Dec 19th has been relent­less in nature with only two ses­sions of any real sell­ing – and even those two were very mod­est by sec­ond half 2011 stan­dards.  Thus the move this morn­ing will cer­tainly have those who are miss­ing it anx­ious and throw­ing in the towel and want­ing to chase.  Gen­er­ally when the last hold­outs want to buy the mar­ket you are most prone to shorter term cor­rec­tions, so these hold­outs should begin con­vert­ing soon.  But with the inter­me­di­ate term mar­ket struc­ture chang­ing to a more pos­i­tive tone, any of the nearer term (and nec­es­sary) cor­rec­tions would be seen as buy­ing oppor­tu­ni­ties, rather than "run to exit" calls, by those who read this mar­ket in a tech­ni­cal way.

What does this have to do with the real econ­omy?  Not much at all – indeed there are some very real con­cerns grow­ing.  (Adding to that is more news of slow­down in the "offi­cial" GDP num­bers out of China – but as we now know, slow­downs are good because they mean more inter­ven­tion)  And the mar­ket is not the econ­omy… and even less so in an era of near con­stant inter­ven­tion by gov­ern­ments and cen­tral banks.  As out­lined last week, if we do get a new round of quan­ti­ta­tive eas­ing, this part of the rally will be the "those in the know get in" part.  And as long time read­ers know from many sto­ries posted in lat­ter 2011, "those in the know" is a broad­en­ing group.. which cer­tain cir­cles can now pay for for access.

This week we enter the heart of earn­ings sea­son – Thurs­day being the most inter­est­ing day.  Cer­tainly some­time here in the next 2 weeks we shall see some­one of note blow up, and we have to see how a now increas­ingly extended mar­ket absorbs that.  If the answer is "well" it puts another feather in the cap of a poten­tial multi month move to the upside ahead.   Keep in mind a Fed meet­ing comes the  week after this and mar­ket expec­ta­tions for even more 'assis­tance' on Bernanke's behalf grow.  Of course, no one asks what is so fun­da­men­tally wrong that this econ­omy needs con­stant and ever grow­ing assis­tance … as long as it gooses asset val­ues (even if tem­porar­ily), that's all that mat­ters to the spec­u­la­tor class.

Dis­clo­sure Notice

Any secu­ri­ties men­tioned on this page are not held by the author in his per­sonal port­fo­lio. Secu­ri­ties men­tioned may or may not be held by the author in the mutual fund he man­ages, the Pal­adin Long Short Fund (PALFX). For a list of the afore­men­tioned fund's hold­ings at the end of the prior quar­ter, visit the Pal­adin Funds web­site at http://www.paladinfunds.com/holdings/blog

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