I think the rally in the markets today can be attributed to the "positive" news out of AIG. Many traders were fearing that AIG would be the next Enron. However, after getting thumbs up from Warren Buffett this weekend and then getting a sign-off from the financial auditors today, AIG will probably make it through this crisis. Although a $2.5 billion write-off seems large and a big negative, AIG’s balance sheet can handle this hit. And it’s a lot better than the potential $5 – $8 billion hit that some (including me) were speculating the company might have to take.
That said, I would be a lot more bullish if the NASDAQ 100 could take out this down channel. This morning, the index hit its head on the downtrend and backed off pretty quickly. The market always has the best chance of advancing strongly when the NASDAQ is leading, not lagging.
The OEX and SPX have already cleared the downtrend hurdle but are staring at some tough overhead resistance (green line).
Another somewhat bullish development is the continued decline of the Fed Futures rates for Dec 2005. The market is saying that the Fed might stop at 3.5 – 3.75% by the end of the year. In March, the fed futures indicated that the Fed might raise rates to 4.0% by the end of the year.
Source: BullandBearWise.com