Two hours into today’s session and a 4% rally in the SPX seems to be holding – at least for now.
One of the catalysts for the rally was a comment made by Citigroup (C) CEO Vikram Pandit in a letter to employees that confirmed the bank made an operating profit in the first two months of 2009 and is on a trajectory to record the best quarter since Q3 2007 – the last time the bank booked a quarterly profit.
So…all of a sudden we have Citigroup looking profitable (for a stretch – and only on an operating basis), the possibility that zombie banks might be able to earn their way back to the land of the living (see my January comments about John Hempton’s analysis of this situation) and a devil’s bottom, where last week’s SPX 666 mark now appears as if it may hold up for at least a little while.
The risk/reward profile of the market may now be turning around, especially when Nouriel Roubini comments, “My main scenario is that it’s highly likely [the SPX] goes to 600 or below...500 is less likely, but there is some possibility you get there.”
After 13 of 16 down days for the SPX, it was only a matter of time before even several pieces of good news randomly clustered together to produce a bullish bounds, but…will it last?
As for the VIX, which is now hovering at the 45 level, the one day bounce does alleviate some short-term fears. The big change in the VIX is not due to technical support levels in the SPX, however, but to the changing macroeconomic landscape, where there is a glimmer of hope on the horizon for the first time since what seems like just a little bit after the invention of the ATM. While VIX is sensitive to technical trends in the markets, ultimately it is a product of macroeconomic and fundamental uncertainty. As the list of possible future universes gets culled down to a manageable, believable and ultimately palatable number, a sub-45 VIX will once again become the norm.