Can the S&P500 Clear the Red Zone?

Some rally! Almost 70 S&P points or 6.4 percent from yesterday’s low to today’s close. Makes us feel we’re back in the 1990′s trading Brazilian and Russian defaulted sovereign debt. So where to now?

The next 60 points are going to be much harder as the S&P500 has to clear the “red zone” — 1175 to 1195 — which will be full of 300 pound Bear linebackers, who can bench press 400 lbs.. Yikes! Halfway into the zone is the 50-day moving average at around 1183, which will also be stiff resistance.

Now that the bulls are on offense, however, here’s what we think it will take for the next 60 yard [point] gain:

  1. The Shanghai (closed this week) and Heng Sang will need to confirm this move;
  2. No fumbles from the Eurozone backfield. European banks need to continue to rally and the Eurocrats have to give the impression they’re moving toward a comprehensive debt solution. The bank recap will have to done as not to adversely affect the sovereign credit of the home governments;
  3. No big penalties from the U.S. data. A significant economic slowdown has been priced, in our opinion, but not a recession nor a -1ooK jobs report. Earnings and guidance will also be key and are priced for a 5-yard off-side setback, but not a 15-yard unsportsmanlike conduct penalty — i.e, big miss and large downward revisions.
  4. No team infighting. No Fugly politics in the U.S. and Europe. No demonstrations turning into riots. Peace, love, soap!

There will be setbacks and quarterback sacks, however, but the bulls are hungry and know time is running out in the 4th quarter. They need performance to get paid. If they can clear the red zone at 1295, we sense performance panic can generate a further rally to 1260, which will move the S&P500 into green for the year. We’ll focus on the Dick Butkus and Michael Singletary at 1230 when we get there. Now let’s hope the backfield of Merkel and Sarkozy can hold onto the football.

A smart bull is like Cub fan who never gives up hope, but never bets the ranch. The bulls lose the ball again at 1101 and the season at 1075. Enjoy the game!

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