The S&P 500 (SPX) sprinted out of the gate Monday morning and never looked back, states Jon Markman, editor of Strategic Advantage.

The rally lifted the benchmark index to 3,974, a closing gain of 1.9%. The biggest rallies occur within the worst bear markets, due to repeated short-covering, and there is plenty of room for stocks to move higher in the near term. The 20-day moving average for the S&P 500 is at 4,070, or 2.5% above current levels. Unless there is some unexpected bad news overnight, bears should concede a rally to that level as they look for a place to reload short positions.

In the interim, I expect that buyers will gravitate toward beaten-down financial and technology issues.

Banks jumped Monday after execs at JP Morgan said that higher interest rates are helping the lender achieve its internal financial targets sooner than expected. And cloud computing stocks got a lift following a report that VMware (VMW) is at the center of takeover talks. Critical support for the S&P is 3,860 on a closing basis.

SA TradeView: It finally looks as though the S&P 500 is set up for a rally that may last more than one day. I’m expecting a rally toward 4,070 for the benchmark index. Given this outlook, modify the current ProShares UltraShort S&P 500 (SDS) order to this: Set up to buy SDS at $42.10 lmt gtc. (The Monday close was $46.84.) Note: Order parameters could be changed via email intraday.

The Upshot

The Dow (DOW) climbed by 2% to 31,880.24. The Nasdaq (NDX) was 1.6% higher at 11,535.28. Financials, energy, and technology stocks led gainers, with all sectors in the green.

The US ten-year yield rose by seven basis points to 2.86%. West Texas Intermediate crude-oil futures rose $0.25 to $110.53 a barrel.

Breadth favored advancers two-one, and there were 234 new lows vs 57 new highs. Big caps on the new high list included Exxon Mobil (XOM), Merck & Co (MRK), Shell (SHEL), ConocoPhillips (COP), and Petroleo Brasileiro S.A. (PBR)...basically, energy and pharma.

During a news conference with Japanese Prime Minister Fumio Kishida, US President Joe Biden said he is considering easing tariffs on Chinese goods that were imposed by the Trump administration.

Separately, Biden said the US would intervene militarily if China attacks Taiwan. The remarks appear to deviate from a policy of deliberate ambiguity traditionally held by Washington. The White House, however, downplayed the comments, saying they don't reflect a change in US policy.

On Wednesday, investors will parse the minutes from the Federal Open Market Committee's meeting on May fourth in which it raised the federal funds rate's target range by 50 basis points to 0.75%-1% and signaled further increases of 50 basis points each in its next two meetings.

JPMorgan Chase & Co. (JPM) raised its full-year 2022 outlook for net interest income, excluding markets, to reach more than $56 billion from original projections in January of roughly $50 billion. The revised outlook assumes that the Federal Reserve will raise short-term rates to 3% by the end of the year, high single-digit loan growth, and a "modest" securities deployment. Shares of JPMorgan Chase surged 6.2%, among the top performers on the S&P 500 and the Dow.

Meanwhile, VMware rallied 25% following a Bloomberg report that the enterprise software firm is in talks to be acquired by chipmaker Broadcom (AVGO). Broadcom was 3.1% lower.

Learn more about Jon Markman here...