The market put on a fantastic show last week as the Dow fell to a low of 10,731 by Tuesday as the Financial stocks lost a whopping 6% on Monday, then another 3% the following day. That all changed by Wednesday as the sector exploded 12% higher and the rally continued for the remainder of the week.

I mentioned we may be getting close to a bottom and by Wednesday the “Blue Light Special” was on. Many of the Banking stocks posted tremendous gains which I’ll update later despite reporting horrible numbers. Yes, some beat earnings but they were for losses. These stocks got rewarded because Wall Street was expecting even bigger losses.

Meanwhile, Google (GOOG, $481.32, down $52.12) and Microsoft (MSFT, $25.86, down $1.66) got punished for missing Wall Street estimates but at least they reported huge profits. The Financial stocks were due for a rebound and the huge bounce was expected but it’s still up in the air if the rally will hold up.

For the week, the Dow gained nearly 400 points and finished at 11,496, or 3.6% higher. The Nasdaq gained 44 points to close at 2,282, up 2%. The S&P 500 chipped in with a 21 point gain and settled at 1,260, up 1.7%.

I guess we can consider last week a “summer rally” or the start of one. Summer rallies are traditional this time of year on Wall Street and through the gloom and doom of things we may get one if the market can get off on the right foot again on Monday. Some of last week’s gains can be attributed to short-covering and it helped that the price of oil went south falling from $146 on Monday to about $129 by Friday.

Nothing changed overnight with the economy and we certainly aren’t out of the woods yet. We get another slew of earnings this week and depending on how rational or irrational the market wants to be is where we will end up.

Rick Rouse