Fri 12/20/11 3:26 PM – Why the Market is Up so Much Today

Yesterday I wrote that the traditional Santa Claus rally had been missing. Europe started the party early today, going up as much as 3% and the US markets have seen that and raised it, up as much as 4%.

Even better, the market has continued to climb as the day has gone on. What is behind that?

1) The ECB has offered unlimited three year loans to European banks and banks are rushing to buy European sovereign debt, much of it at high yields so they can use it as collateral to obtain the ECB loans at much lower rates. That’s a built-in profit for the banks, which they need, liquidity for banks and lower interest rates on sovereign debt.

2) With the market down so many days in a row, short-sellers (those investors who bet on stocks going down) have had to reverse course and buy the market today. That is known as a short-covering rally.

3) Low volume during Christmas week magnifies price movement.

4) Some think the train is leaving for the Santa Claus rally and want to go from cash or short to betting on the market going higher as it usually does this time of year.

5) Housing numbers were much better. Home building stocks have been on a tear lately, up 30% in a few weeks.

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