BROKERAGE UPGRADE GIVES FINANCIALS BIG BOOST -- S&P 500 CLOSES BACK ABOVE NECKLINE IN CHALLENGE OF HEAD AND SHOULDERS TOP

FINANCIAL STOCKS JUMP 6%... A buy signal on Goldman Sachs by a prominent Wall Street analyst and an upgrade on bank stocks gave a big boost to that sector and the rest of the market with it. The Financials Sector SPDR (XLF) climbed 6.4% and it did so on heavy volume as shown in Chart 1. The XLF/SPX relative strength ratio (below chart) jumped as well. The XLF is back above its 200-day moving average and is nearing its 50-day line. Initial overhead resistance is at 12.11. A close over that chart barrier would certainly improve the short-term trend of the XLF. Whether or not it does that may determine if today's bounce in the rest of the market has any staying power. Chart 2 shows the S&P 500 rising 2.5% (22 points) on rising volume. The SPX closed slightly above the "neckline" drawn under the May/June lows. Another day or two above that resistance line would force me to reevaluate the short-term head and shoulders top that I've been writing about. The SPX still needs to clear its late June high at 930 to turn its short-term trend back up again. We'll be watching very closely over the next day or two to see if today's impressive market bounce was just a one-day event or something more lasting.

Chart 1

Chart 2