The S&P 500 in the past week had its longest winning streak since August, ending the week at 815. The Dow finished at 7776, up nearly 7 percent.
"Where we used to see panic on the downside, now there's the fear of a sharp move up. We saw that for the last two weeks," said Patrick Kernan, who trades S&P 500 options at the Chicago Board of Options Exchange.
Kernan said investors are positioning themselves for more volatility. "The VIX (CBOE volatility index) is implying a 2.5 percent daily move in the underlying. That's like a 21 dollar daily move in the S&Ps. I think the (S&P) close above 800 is probably a good thing, but I still think we are still in store for quite a bit of choppiness," he said.
Thursday's G-20 meeting in London is the focus for foreign exchange and other traders this week. "It's got a greater significance because it's Obama's first foray into global financial relations. This is the best prepared summit I've seen in a long time. (U.K. Prime Minister Gordon) Brown has talked to all of the heads of state ahead of it," said Robert Hormats, vice chairman of Goldman Sachs International.
China in the past week stirred up currency markets with comments the world might consider a new reserve currency. "I think China is now saying, 'We have a big stake in the global system, and we want to convey our views and have them heard,'" Hormats said. "They are clearly a major player and not just a major player—one of the two biggest major players." He said he does not expect any significant statement on currencies from the summit.
Treasury Secretary Timothy Geithner rolled out a sweeping proposal for financial market reform and regulation before a Congressional committee Thursday. The timing of that proposal was no coincidence, as averting a future crisis will be part of the G-20 agenda.
"I think they're going to make every effort to create a very harmonious outcome, but one that also does two things fundamentally. One is to demonstrate cooperation in resolving the current crisis, and the other to demonstrate cooperation in avoiding a recurrence of a similar type of crisis in the future. In the first category, there's maximum effort to stimulate economies. Not everybody is doing the same thing, but they're moving in the same direction," he said.
"Also, in that category comes recapitalization of banks, with major efforts by everyone to recapitalize banks to the extent they can, and very importantly this supports the Lula point, supporting a large contribution to the IMF and being prepared to do more," said Hormats. Brazil's president Luiz Inacio Lula da Silva, in the past week, blamed bankers from the developed nations for the crisis and said they have disproportionately hurt developing countries. He said he intends to add some "spice" to the G20 gathering.
"Not only are the emerging and developing countries the victims of the credit crisis but helping them is one of the solutions of this crisis. Before this, roughly 10 percent of our GDP was accounted for by exports," he said.
Tuesday is the government deadline for the auto industry to show its viability plan but it's likely the companies will be given an extension. "As far as I understand they'll give them more money and give them another set of bench marks and see if they can get it together," said Mark Zandi, chief economist at Moody's Economy.com.
From 'Fast Money':
Auto makers are scheduled to report March sales Wednesday, and Zandi said it appears sales for March will be weaker than those in February.
In the coming week, jobs data tops the economic calendar. The number, reported on Friday, is expected to show the loss of 650,000 non farm payrolls, and the unemployment rate could move up to about 8.5 percent, Zandi said.
"As long as we are hemorrhaging jobs like that, all these signs of optimism are good and encouraging but are not going to be meaningful until jobs are stable," he said. Zandi said business executives he speaks with are indicating there are signs the economy was stabilizing in February and March.
Zandi said he is also watching the S&P/Case Shiller home price index, reported Tuesday, for any signs of moderation in price declines. He said FHFA price data, which in the past week showed an improvement, was not as meaningful because it was for January when there were very few sales.
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Other data in the coming week includes the Chicago purchasing managers survey and consumer confidence on Tuesday; ADP's employment report, ISM, pending home sales and construction spending Wednesday, and weekly jobless claims and factory orders Thursday. Friday's reports also include ISM non-manufacturing data.
Fed chairman Ben Bernanke speaks on the Fed's balance sheet at the Richmond Fed's Credit Symposium in Charlotte at noon Friday. Fed Vice Chairman Donald Kohn speaks at 11 a.m. in Ohio on the same day.
Bear Turns Almost Bullish
Brown Brothers Harriman's Brian Rauscher, who has been very bearish, changed his tune in the past week. He told clients he now sees the "proverbial glass half full instead of nearly empty" and they should prepare for a rally for at least the next three to five months. That does not mean the market will not dip before that. In the near term, he sees a pullback below 780 before the S&P 500 heads to a zone of 900 to 1,000.
"Right now, we're positioned for a bounce, and the difference in what we've had thus far is that I see this rally as more than just a four week short covering rally," said Rauscher, director of portfolio strategy.
Rauscher said the Fed and Treasury programs to help the banks and markets are temporarily serving as positive catalysts, as is some of the improved data. If the trend continues, the market may move from a bear market rally to the start of a cyclical bull market, but he's not counting on that yet. "Right now, I'm going to be what I term an 'opportunistic bear,' which in the meantime has me aligned with bullish people," he said.
The type of thing he is watching for is a consistent leveling of data and then continued improvement, versus a temporary blip. "As of right now, the data is fairly inconclusive in my opinion. I tend to believe that we have bigger problems than people generally accept," he said. "In my opinion, the winter or spring of next year, we could be right back down."
But for now, he recommends investors buy and move into less defensive sectors. "Right now people should enjoy it. They should try to participate in it but, until proven otherwise to me, this is a bear market rally," he said. He likes consumer discretionary, energy, materials and some tech. "The defensive areas are the areas you don't want to be in when we rally, which is stables, health care and utilities. There's no risk reward in people holding them. I was long those groups for three years," he said.
Oil was higher for a sixth week, registering a slight 0.6 percent gain to $52.38. Some traders take the move in oil as a sign the market believes the global economy is not as week as previously thought.
John Kilduff, senior vice president at M.F. Global, said the market appears to be defying supply conditions but he does not expect oil to return to its lows. "Prices have been elevated due, in part, to the Federal Reserve's move toward quantitative easing. The longer-term effects of this policy seem to have been priced in, almost immediately," he said. "Energy market bears point to swelling inventories of crude oil and some refined products to construct their argument for lower prices. Unfortunately, this basic correlation left the building a long time ago. In fact last June, shortly before crude oil hit its record high, U.S. inventories were at record levels."
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