Short-Term Top Tomorrow?

Many market participants have been waiting for some time now for the market to offer a decent pull-in. That has yet to happen. Yesterday, the S&P 500 joined the Nasdaq in positive territory for year-to-date performance now up 1.8% YTD, still lagging the Nasdaq's 11.6% gain. The S&P has now rallied 38% off the March 6th intraday lows of 666.79. In the entire rally, the largest pull-in was 6.4% over a 3-day period. Clearly, any short willing to step in front of the train has been run over and buyers have been forced continually to chase this move off the bottom only propelling stocks higher.

Many chart technicians have looked for the short far too early and have missed out on much of the possible gains. I saw possible fundmental triggers for a top in this rally being the 1st quarter GDP results or the stress test results. Well, the GDP number came and went with the market finding cause to rally on the back of a 6.1% drop in advance GDP as investors found hope in the 2.2% rise in consumer spending. With the stress tests results scheduled for release tomorrow, traders have clearly "bought the rumor". Perhaps the market tops tomorrow as traders "sell the news".

Company	1-Month Performance	Company	1-Month Performance
American Express	79.02%	Wells Fargo	76.00%
Bank of America	46.20%	Regions Financial	37.83%
Bank of New York Mellon	8.17%	BB&T	59.56%
Capital One Financial	74.65%	Fifth Third	71.92%
Citigroup	41.91%	KeyCorp	-3.15%
Goldman Sachs	19.35%	PNC Financial	40.37%
JPMorgan Chase	31.99%	State Street	17.97%
MetLife	28.88%	SunTrust	53.46%
Morgan Stanley	22.31%	US Bancorp	39.70%

Most banks have had significant rallies into this report so a "sell the news" trade is a very high possibility. The stress tests, intended to bolster confidence in the financial system, have become yet another misstep of the Timothy Geithner Treasury. Geithner has created a great deal of consternation with the development of a test to determine what capital levels are appropriate for key financial companies. In the great words of Kramer, "Well, I have to say this seems capricious and arbitrary". The appropriate level of capital per institution depending on various generalized scenarios of lowered GDP or higher homeowner default rates is incredibly difficult to forecast with any accuracy, if not altogether impossible. Either way, these tests look as if they will contribute to a diverging of the sector, placing the strong and weak in separate, well-defined categories.

The market feels as if it is nearing a short-term top. The tape has become extended and the bid to stocks does not seem quite as strong. Stocks this week seem to have run higher as the last chasers, namely retail money, attempts to jump on the bandwagon at the top. Tomorrow's major news may put the top in this rally.