The US stock market shot straight up this afternoon, reversing a day of declines. The reason is a news story released minutes before the rally occured from the Financial Times. FT is reporting that leaders in Europe are working on a way to recapitalize their banks.
“Capital positions of European banks must be reinforced to provide additional safety margins and thus reduce uncertainty,” Olli Rehn told the FT. “This should be regarded as an integral part of the EU’s comprehensive strategy to restore confidence and overcome the crisis.”
US equities shot up after this story was released, possibly scaring many traders who were short the market to cover their trades (by buying back their positions).
However, it should be noted that this is nearly an article about a plan to put a plan in place sometime in the future. And since the Euro is comprised of numerous European countries who haven’t been able to agree on anything of late, caution should be warranted. Even if a plan was released tonight, it may take weeks for all the members of the Euro to agree on it. During that time Greece could default and put European banks in pearl.
Looking at the charts, the S&P 500 rallied right up to the “line in the sand” it broke yesterday. But the trend still is in a declining pattern and we may see the markets reverse tomorrow if more details of this so called plan do not emerge.