9:00am (EST)

The bulls staged an impressive rally on Monday after learning the European Union (EU) and the International Monetary Fund (IMF) have agreed on nearly a $1 trillion rescue package to help debt-riddled nations across the euro zone.  It was the biggest sign of support we have seen from our friends across the way and Wall Street ate it up. 

The negotiations lasted into the early hours of Monday, and the timing was brilliant as EU officials agreed the 16 euro nations would put up $572 billion in new loans and $78 billion under an existing lending program.  The IMF is adding another $325 billion. 

Furthermore, our Federal Reserve said it would provide U.S. dollars to a number of foreign banks, which can then lend the cash to banks in their respective countries. 

Needless to say, the bears never had a chance as the bulls maintained most of the gains from the initial pop at the open yesterday. 

djia051110

The Dow surged to a high of 10,835 shortly after trading got underway and finished Monday’s session with a 405 point gain, or 3.9%, to close at 10,785.  It was the biggest point jump since March of last year as all 30 stocks that make up the Dow finished in positive territory. 

Boeing (BA, $71.00, up $4.28), Caterpillar (CAT, $66.69, up $4.59) and International Business Machines (IBM, $126.27, up $4.17) accounted for nearly 100 points of the Dow’s move and Bank of America (BAC, $17.30, up $1.12) chipped-in by adding 7% to led the Financials. 

However, the Dow settled just south of 10,800 which is now acting as resistance after being short-term support. 

The S&P 500 also has a stellar day as it advanced nearly 50 points, or 4.4%, to settle at 1,159.  The index traded to a high of 1,163 and is slightly above the 1,150 level.  We can see a test up to 1,170 but the bulls will need a lot of momentum if they want to run past current levels. 

Meanwhile, the Nasdaq led the rodeo with an eye-popping triple-digit gain of 109 points, or 4.8%, to close at 2,374.  It was the first 3-digit move higher since October 2008 but the index failed the 2,400 level after reaching a high of 2,379. 

vix051110

As a result of yesterday’s strong rally, the CBOE Market Volatility Index (VIX, 28.84, down 12.11) fell 30% after reaching fresh highs last week.  You can trade options on the VIX just like ordinary stock options but the premiums are super-jacked and we didn’t see any good trades.  We were thinking of doing a straddle or a strangle option trade but after doing the research, we think there are so many better opportunities elsewhere.

We doubt yesterday’s relief rally repaired all of the damage done by the recent sell-off and we would are expecting a retest of those levels again sometime over the next month of two.  However, anything is possible in this crazy and volatile market so we can’t ignore the fact the bulls brought the market back into positive territory for 2010.

Despite yesterday’s rally, futures are pointing towards a nasty open as Dow futures are off by 90 points to 10,652 while the S&P 500 futures are lower by 11 points to 1,145.  The Nasdaq 100 futures are off by 17 to 1,922.  We used yesterday’s rally to scale in two more put trades and they should get off to a good start if the market is indeed headed lower today.

Subscribers, check the Members Area for the updates.