Optimism on Possible Budget Deal Fuels Bulls
I was off yesterday, but much of the modest optimism I saw in my emails seemed predicated on the idea that a budget deal was imminent, based on President Barack Obama's recent "Republican Outreach" program.
Bulls believe this will be the fuel that keeps the rally going, believing that some kind of deal is coming which will fund the government for the rest of the year while keeping the sequester in place.
It does seem like the sequester is here to stay, at least for a few months, but I'm less optimistic that some kind of mini-Grand Bargain is forthcoming. I don't see any side putting forth big ideas.
Oh, we know the outlines of what a deal might look like: A mishmash of Social Security cost-of-living allowance change, modest Medicare savings, and a few spending cuts such as farm subsidies and defense, along with a few tax loophole closers.
(Read More: Cuts Give Obama Path to Create Leaner Military)
Sure, Paul Ryan has an editorial in The Wall Street Journal on how to make a deal, and he will introduce another bill this week that will contain no tax increases. Senate Democrats — who haven't had a budget in four years — say they might outline a plan, maybe this week. The president will not release a budget plan until April at the earliest, and it will be the opposite of the Ryan plan: all revenue raisers, nothing on spending cuts.
Based on this, you'll forgive me if I'm a little skeptical that all these dinners will produce something substantive.
The bulls are right about one thing: After a brief flutter at the end of February, the rally has resumed. The S&P 500 and Dow Jones Industrial Average are up seven days in a row ... the last time the Dow industrial average was up eight days in a row was on Feb. 9, 2011. The S&P 500 was up eight days in a row in January this year.
That rally is starting to look a bit stretched. Albert Lewitinn, producer of CNBC's "Street Signs," reminded me that a few weeks ago, before the late February stall, I noted that the S&P 500 was about 8 percent above its 200-day moving average, a fairly rare occurrence, and that in prior periods when the S&P 500 had been that stretched, rallies often stalled out and went into a consolidation phase.
We are there again: Based on a 200-day moving average of 1,424, the S&P 500 is now 9.2 percent above its 200-day moving average.
This is a general rule of thumb I have used for several years — when a major index gets more than about 8 percent above its 200-day moving, it tends to have a tough time going higher without some period of consolidation.
The last time this happened was at the end of March 2012: The S&P 500 did indeed stall out; it also came close in September and stalled there, as well.
—By CNBC's Bob Pisani