The DJIA was off slightly today, though the Nasdaq and small stocks were higher by 1/2%. Europe was mixed.
We are not near the top of the trading range. Now that the euphoria has been eased for at least a day, the question is, can the market keep going up?
The main thing driving the market higher, aside from short-covering was excitement over the commitments of Sarkozy and Merkel to recapitalize the banks. In addition, the IMF may participate in coming up with money, as well as the German and French governments.
But, is there enough money in Europe to rescue the banks if Italy and Spain continue to need constant buying of their bonds in order to keep their rates from rising out of control? Dexia, the Belgian bank that was just taken over by the Belgian and French governments passed the bank stress test a few months ago. In the end, it was levered 100-1. What else is being hidden?
It may be time for a reality check and at least profit-taking on this sharp rally in which materials, energy, industrial and bank stocks soared 12-17% in the last 6 days, at least on my picks.