Market Update 4:25pm Mostly Short Covering into the Close; “extend the homebuyer tax credit”

Market Update – stock momentum extends into the close (SP500, Dow, Comp up 2.9%, 2.7%, and 2.7%, respectively; the R2K was up 3.5% -- all ended pretty much @ highs).  Ingredients for the rally laid this morning as two major market overhangs (Europe and China) see some resolution.  On European front, we have seen bunch of decent debt auctions (Italy, Portugal, Spain) as well as a better-than-feared ECB meeting today (see below for broader ECB update).  In China, the strong export reports (which was technically out Wed morning in the Reuters article but officially hit overnight) is relieving market worries about a steep slowdown from that country.  What caused the last leg higher into the afternoon?  It was mostly the fact that the tape failed to break (like we did on Wed) that prompted more buying/covering.  There were a few fundamental items to note late in the day: 1) a Bloomberg article crossed discussing how AIG’s MI business is seeing strength (this caused a rally in the likes of MTG, PMI, and RDN); 2) Sen Reid made comments about how he wants to “extend the homebuyer tax credit” (although the headline was a bit misleading as Reid only wants to give people more time to close on existing contracts – see below for an update); 3) technicals played a roll – once we broke up through the low 1080s, the market saw a step higher.  Some other more minor headlines: A DJ article re BP also helped (the article cited sources a the DOJ as saying that there won’t be a legal injunction pursued against BP at the moment to prevent dividend payments) and there was some positive news on the budgetary front for both the US federal gov’t (monthly budget statement out at 2pmET revealed a smaller deficit for May) and California.  The color from the desk remains the same – there wasn’t a lot of “real” or “high conviction” buying occurring – things remain very macro/technical driven and people preferring to achieve exposure via futures/ETFs instead of making big stands in single stocks.  Volumes/activity VERY quiet headline into the close.  On the plus side, the fact the sp500 was able to withstand the >2.5% decline in Goldman was encouraging to some.  In addition – this headline late in the day (from the FT Deutscheland that was picked up on Bloomberg) didn’t seem to knock the tape too much “EU Member Nations Prepare Emergency Aid for Spain” (although this could get more attention in the overnight session).  The “pain trade” def. remains to the upside for the moment, as most aren’t well positioned for persistent/sustained upside in the tape.