The S&P 500 (SPX) jumped sharply Monday at the open, following its worst week since 2020, says Jon Markman, editor of Strategic Advantage.

The benchmark index finished at 3,765, a gain of 2.5%.

The close above the first resistance level at 3,705 sets up the potential for a larger rally toward more important resistance levels at 3,810 and possibly the gap at 3,900.

A move this week toward those levels would feel like the start of a new bull market. It would not be that—and not even close. The biggest stock market rallies happen inside bear markets. There is a good reason for this: Watershed declines cause dislocation. Bulls ultimately stick their heads in the sand. They refuse to sell, creating a vacuum of sorts on the way back up.

Unfortunately, bulls are not in control of the intermediate trend. Bears are driving this advance. Short covering lifted the index Monday, and that phenomena may continue through the remainder of this week.

However, bears will reload short positions. They have been emboldened by higher rates and the general lack of buying across most stock sectors. My guess is bears will begin firing bullets again as the S&P 500 nears 3,900, if it gets that far. Be ready.

SA TradeView: We did not enter a new trade Monday. The ProShares UltraShort S&P 500 (SDS) closed at $51.11, after trading as low as $50.69. Our targeted entry level was $50.30.

Cancel that order and replace it with this new ticket: Buy the ProShares UltraShort S&P 500 (SDS) at $48.25 lmt gtc. If filled, set target to sell all at $57.10 and set new stop at $45.40 stp.

The Upshot

The Dow (DJI) jumped 2.2% to 30,530.25 and the Nasdaq (NDX) shot 2.5% higher to 11,069.30.

All sectors posted gains, led by energy, consumer discretionary, and consumer staples.

Breadth favored advancers 3-1, and there were 32 new highs vs 329 new lows. The leaders were Argenx SE (ARGX), Sanderson Farms (SAFM), Grocery Outlet (GO), and Scorpio Tankers (STNG).

The US 10-year yield rose 4.5 basis points to 3.3%. West Texas Intermediate crude oil futures climbed 1% to $110.65 per barrel.

St. Louis Fed President James Bullard warned inflation expectations could become unanchored without creditable action by the Federal Reserve. Inflation expectations in the US "could become unmoored without credible US Federal Reserve action, possibly leading to a new regime of high inflation and volatile real economic performance," Bullard said at an event hosted by the Barcelona School of Economics Monday, according to a Stifel research note Tuesday.

Meanwhile, Richmond Fed President Thomas Barkin on Tuesday called Federal Reserve Chair Jerome Powell's guidance that the US central bank will most probably hike interest rates by 50 or 75 basis points in July as "reasonable."

In other economic news, the pace of US existing home sales fell 3.4% to a 5.41 million seasonally adjusted annual rate in May, data from the National Association of Realtors released Tuesday showed. The expected decline was 5.4 million in a survey compiled by Bloomberg. Following four straight declines, the sales were the lowest since June 2020 and down 8.6% from a year earlier.

In company news, Tesla (TSLA) plans to lay off about 10% of its salaried workforce over the next three months, Reuters reported Tuesday, citing the company's CEO Elon Musk. Shares of the battery automaker jumped 9.4%, the most on the S&P 500 and the Nasdaq 100.

Credit Suisse upgraded Exxon Mobil (XOM) to outperform from neutral, saying its differentiated growth strategy will deliver excellent returns and raises its price target to $125 from $115. Shares of the oil and gas exploration group advanced 6.3%, among the biggest gainers on the S&P 500.

Learn more about Jon Markman here...