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Stocks Rally On Geithner's Stimulus "Stew"

Stirring the pot: Will the government spending amount to a palatable "stew?"

Some traders are starting to think that the "stew" of stimulus, TALF, TARP, and Geithner might stabilize the economy, or at least convince more that the bottom is somewhere in sight.

That's why stocks are rallying today.

Much of today's rally is short covering. Look at what's rallying. Three of the most heavily shorted sectors--banks, retailers, and home builders--are rallying the most.

That's because the stimulus and other packages are now real, and those who are short these sectors are concerned that if these plans succeed in stabilizing the economy, the easy short trade in stocks is over.

So, for example:

1) A housing tax credit will create a problem for shorts in housing;

2) An expanded TARP and the Geithner plan will create a problem for shorts in banks;

What about retailers? More money for consumers will help, but the retail story is more about managing profit & loss in a weak environment:

1) Companies are managing inventories better and are cutting expenses aggressively;

2) They are reducing 2009 estimates;

3) There are lot of sales up for grab (Best Buy taking share from Circuit City, Bed Bath & Beyond taking it from Linens 'n Things);

4) Traders want to own the survivors, those who will take the market share.

The bull bottom line: the easy short trade in retail is over. It's about finding survivors. That means stock picking (which has not mattered in 6 months) will make a comeback.

Still, wait until next week: there will be an attempt to "sell the news." Expect down days next week.

No one is expecting huge rallies (unless mark to market is repealed), but a small cadre of bulls are insisting the risks are more on the upside than the downside.

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    A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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