If Fed Chairman Ben Bernanke continues to see those "green shoots" in the economy, stocks could push higher again Tuesday.
Bernanke testifies at a 10 a.m. hearing before the Joint Economic Committee. Bernanke's comments on Capital Hill could be pivotal for a market set on driving higher despite a chorus of doubters who believe stocks will soon top out.
The S&P 500 Monday surged 3.4 percent to 907, positive for the year for the first time, after crossing 903. The Dow chalked up 214 Dow points, or 2.6 percent to 8426, its highest close since Jan. 13. The S&P financials jumped 10 percent and were the best performers.
From 'Fast Money':
Steve Grasso of Stuart Frankel says stocks should continue to trend higher, and the market's move shows resilience since the upswing is coming ahead of the government's Thursday release of bank stress test results. "I think we're in a bullish trade, not because I believe in the fundamentals of the market ... I don't think you fight the trend right now. Shorts are going to get squeezed, and the mutual funds want in," he said.
Grasso said the fact that Citigroup Monday said it hoped to raise private capital, not take government money, was seen as bullish. The stress tests, being conducted on banks that received government money, have been worrying the markets for weeks. Each day, new reports emerge on banks needing capital. On Monday, the Associated Press reported that Wells Fargo may need capital to buffer it against future losses.
Stock market bulls may have been grazing on those economic "green shoots" first raised by Bernanke several weeks ago, but Tony Crescenzi of Miller, Tabak and Co said the next big move up will be more difficult. Crescenzi was early to spot signs of "troughing" in economic indicators, and now he thinks the markets have caught up with the idea, and the economy is still far from cured.
"The movement in markets now discounts certain events. The trough idea is well known ... The phrase that is popular is 'green shoots.' I think it could take us a little further to the upper 8000 range on the Dow. Junk bonds, corporate bonds and emerging markets will perform better for a little longer, but there's a limit to how far it can go," he said.
More From CNBC.com
- Get After-the-Bell Dow 30 Quotes
- Credit Spreads and Libor Data
- Futures and Pre-Market Data
- Currency Data
"The next leg has to come from the idea that this is going to last."
Crescenzi said Bernanke could give an update on his "green shoots" comment, or the idea that the economy is "less bad," as some analysts put it. "There is an effort in government to sound more optimistic. Certainly Obama is doing that, and effectively, given the way the consumer seems to be feeling," Crescenzi said.
Bernanke is unlikely to discuss anything radically different before the Congressional panel. "The way he usually constructs his speeches is he gives updates. He'll kind of have a baseline case ... and then he incorporates the new information. He doesn't really give you a bunch of new ideas. He just expounds on the most recent one," he said. Bernanke could include comment on the latest reading of GDP, ISM or the Fed's updates on bank lending.
Crescenzi also said improving data from China could give Bernanke support on the idea that the global economy is stabilizing. On Monday, the CLSA China manufacturing purchasing managers index was reported at 50.1 in April, up from 44.8 in March, its first increase in nine months.
Scott Redler, who watches the stock market's technical moves, said market showed signs of strength last week when it didn't collapse on fears of a potential global pandemic, and that triggered a big momentum move.
"You have long-term mutual funds buying. You have hedge funds that missed this move shorting, and you have retail investors sitting on the fence saying 'what do I do?'" Redler said.
"At this point, 920 to 925 (on the S&P) seems like the short-term target. I think that's what's going to cap this first move," he said. "If we get 925, there's a chance of an overshoot to 945, but it's somewhat doubtful for this leg."
Redler said the S&Ps could be above 1000 by year's end, but it's likely there could be a temporary pull back back toward the 875 level after the S&Ps cross 925, or even 945.
Oil closed Monday at its highest level since November on optimism the economy is improving enough to generate stronger demand. Oil finished 2.4 percent higher at $54.47, the outside edge of its latest trading range.
"I think it's predominantly going along with the S&P and Dow, and you also had a weaker dollar," said Ray Carbone, president of Paramount Options. "I think tomorrow you're going to have a balancing day and waiting for the inventories on Wednesday."
The dollar was down 1 percent against the euro , at $1.3402 per euro, and it was down 0.35 percent against the yen. Treasurys were mixed, but buyers moved into the 10-year, pushing its yield slightly lower to 3.157 percent. The Treasury auctions $35 billion in 3-year notes Tuesday, the first of three days of auctions for $70 billion in issuance this week.
The only piece of economic data Tuesday is ISM non manufacturing due at 10 a.m. Earnings before the bell include Kraft, Archer-Daniel, CVS Caremark , Duke Energy, Emerson, FirstEnergy, and UBS. Disney, Centex and Pulte Homes report after the close.