Tomorrow should be interesting as news has come out tonight that BAC will need 34 Billion in capital as per government stress tests.
We're surprised at the news (as is the market with futures down 1.2% as we write this post) as we assumed the stress test had the bars set very low, since after all, it was created by the government.
Tomorrow should test the bull's resolve; we'll be watching for down-side momentum, volume, and how broad the potential pull-back will be. We'll also be focusing on possible divergences between financials and commodities.
If we sell-off hard tomorrow (and more importantly Thursday when the details and not just the headline leaks come out), and on good volume, then most likely it will be a start of at least an intermediate pull-back. If the market pulls back only with mild losses, or no losses, or even gains (!) then chances are that the S&P will be going to 1000 with ease.
Update: it seems that the BAC news has now been interpreted differently (not a big surprise since we would have been shocked to see these quasi tests actually produce bad news) and futures rallied on better than expected economic news.
We'll see how they close them -- any mild pull-back this week would be bullish to base under resistance, especially in the QQQQ and IWM.
