Although the troubles with Portugal's Banco Espirito Santo were in focus late last week, the concerns appear to be fading fast. This morning global markets are rallying on hopes that ECB President Draghi will announce a 700 billion euro TLTRO program when he testifies before the European parliament today. Thus, Europe's stock markets are mostly higher in the early going.

Here at home, traders appear to be encouraged by the action in the overnight markets as well as earnings out of Citigroup (C), which came in ahead of expectations on both the top and bottom lines.

In economic news, it's another quiet calendar, but the data will pick up later in the week. Also note that Janet Yellen will provide her semi-annual testimony on Capitol Hill Tuesday and Wednesday.

U.S. stock futures are up nicely in the early going and point to gain of more than 90 points for the Dow at the open.

Current Market Outlook

Although the headlines out of Portugal's Banco Espirito Santo may have reminded the bears of the bad old days of the European debt crisis, traders in the U.S. do not seem to be overly concerned at this stage. Exhibit A would be the action of the market on Thursday and Friday. Recall that stock market indices dove at the open on both days only to recover the vast majority of the losses by the close. And since the S&P 500 finished the week about where it was on Tuesday, we can conclude that there is no major worry about rate contagion in Europe at the present time. However, it is worth noting that our market environment model has started to sag and is currently moderately positive.

Looking at the charts...

The tape action of the last couple days has been a bit confusing to say the least. There have been algo-induced dives at the open as well as strong rebounds throughout the remainder of the day. The end result for the S&P and DJIA hasn't been too bad. Granted, the pre-holiday breakouts are gone. However, the short-term trend can be rated no worse than neutral for both indices. However, the smallcap and midcap indices are in clear downtrends. And finally, the chart of the NASDAQ is somewhere in between. In short, the bulls can claim possession in the broad market while the bears still control the smaller issues. Thus, it appears to be "game on" and it is likely a very good idea to watch the chart action carefully in the coming days.

Pre-Game Indicators

Here are the Pre-Market indicators we review each morning before the opening bell...

Major Foreign Markets:
- Japan: +0.88%
- Hong Kong: +0.49%
- Shanghai: +0.98%
- London: +0.66%
- Germany: +0.82%
- France: +0.68%
- Italy: -0.15%
- Spain: +0.23%

Crude Oil Futures: -$0.16 to $100.67

Gold: -$1.90 at $1337.40

Dollar: lower against the yen and euro, higher vs. pound.

10-Year Bond Yield: Currently trading at 2.524%

Stock Futures Ahead of Open in U.S. (relative to fair value):
- S&P 500: +10.13
- Dow Jones Industrial Average: +93
- NASDAQ Composite: +18.62

Current Market Drivers

We strive to identify the driving forces behind the market action on a daily basis. The thinking is that if we can both identify and understand why stocks are doing what they are doing on a short-term basis; we are not likely to be surprised/blind-sided by a big move. Listed below are what we believe to be the driving forces of the current market (Listed in order of importance).

      1. The Outlook for U.S. Economic Growth
      2. The State of Fed/ECB Policy
      3. The State of the Earnings Season
      4. The State of the Geopolitical 'Issues' in Ukraine, Iraq, and Gaza

The State of the Trend

We believe it is important to analyze the market using multiple time-frames. We define short-term as 3 days to 3 weeks, intermediate-term as 3 weeks to 3 months, and long-term as 3 months or more. Below are our current ratings of the three primary trends:

Short-Term Trend: Neutral
(Chart below is S&P 500 daily over past 1 month)

Intermediate-Term Trend: Positive
(Chart below is S&P 500 daily over past 6 months)

Long-Term Trend: Positive
(Chart below is S&P 500 daily over past 12 months)

Key Technical Areas:

Traders as well as computerized algorithms are generally keenly aware of the important technical levels on the charts from a short-term basis. Below are the levels we deem important to watch today:

• Key Near-Term Support Zone(s) for S&P 500: 1960(ish)
• Key Near-Term Resistance Zone(s): 1985

The State of the Tape

Momentum indicators are designed to tell us about the technical health of a trend - I.E. if there is any "oomph" behind the move. Below are a handful of our favorite indicators relating to the market's "mo"...

• Trend and Breadth Confirmation Indicator (Short-Term): Negative
  Signal Explained: History shows the most reliable market moves tend to occur when the breadth indices are in gear with the major market averages. When the breadth measures diverge, investors should take note that a trend reversal may be at hand. This indicator incorporates an All-Cap Dollar Weighted Equity Series and A/D Line. From 1998, when the A/D line is above its 5-day smoothing and the All-Cap Equal Weighted Equity Series is above its 25-day smoothing, the equity index has gained at a rate of +32.5% per year. When one of the indicators is above its smoothing, the equity index has gained at a rate of +13.3% per year. And when both are below, the equity index has lost +23.6% per year.
  
• Price Thrust Indicator: Neutral
  Indicator Explained: This indicator measures the 3-day rate of change of the Value Line Composite relative to the standard deviation of the 30-day average. When the Value Line's 3-day rate of change have moved above 0.5 standard deviation of the 30-day average ROC, a "thrust" occurs and since 2000, the Value Line Composite has gained ground at a rate of +20.6% per year. When the indicator is below 0.5 standard deviation of the 30-day, the Value Line has lost ground at a rate of -10.0% per year. And when neutral, the Value Line has gained at a rate of +5.9% per year.
  
• Volume Thrust Indicator: Negative
  Indicator Explained: This indicator uses NASDAQ volume data to indicate bullish and bearish conditions for the NASDAQ Composite Index. The indicator plots the ratio of the 10-day total of NASDAQ daily advancing volume (i.e., the total volume traded in stocks which rose in price each day) to the 10-day total of daily declining volume (volume traded in stocks which fell each day). This ratio indicates when advancing stocks are attracting the majority of the volume (readings above 1.0) and when declining stocks are seeing the heaviest trading (readings below 1.0). This indicator thus supports the case that a rising market supported by heavier volume in the advancing issues tends to be the most bullish condition, while a declining market with downside volume dominating confirms bearish conditions. When in a positive mode, the NASDAQ Composite has gained at a rate of +38.3% per year, When neutral, the NASDAQ has gained at a rate of +13.3% per year. And when negative, the NASDAQ has lost at a rate of -8.5% per year.
  
• Breadth Thrust Indicator: Neutral
  Indicator Explained: This indicator uses the number of NASDAQ-listed stocks advancing and declining to indicate bullish or bearish breadth conditions for the NASDAQ Composite. The indicator plots the ratio of the 10-day total of the number of stocks rising on the NASDAQ each day to the 10-day total of the number of stocks declining each day. Using 10-day totals smooths the random daily fluctuations and gives indications on an intermediate-term basis. As expected, the NASDAQ Composite performs much better when the 10-day A/D ratio is high (strong breadth) and worse when the indicator is in its lower mode (weak breadth). The most bullish conditions for the NASDAQ when the 10-day A/D indicator is not only high, but has recently posted an extreme high reading and thus indicated a thrust of upside momentum. Bearish conditions are confirmed when the indicator is low and has recently signaled a downside breadth thrust. In positive mode, the NASDAQ has gained at a rate of +22.1% per year since 1981. In a neutral mode, the NASDAQ has gained at a rate of +14.5% per year. And when in a negative mode, the NASDAQ has lost at a rate of -6.4% per year.
  
• Bull/Bear Volume Relationship: Moderately Positive
  Indicator Explained: This indicator plots both "supply" and "demand" volume lines. When the Demand Volume line is above the Supply Volume line, the indicator is bullish. From 1981, the stock market has gained at an average annual rate of +11.7% per year when in a bullish mode. When the Demand Volume line is below the Supply Volume line, the indicator is bearish. When the indicator has been bearish, the market has lost ground at a rate of -6.1% per year.
  
• Technical Health of 100 Industry Groups: Moderately Positive
  Model Explained: Designed to provide a reading on the technical health of the overall market, this indicator takes the technical temperature of more than 100 industry sectors each week. Looking back to early 1980, when the model is rated as "positive," the S&P has averaged returns in excess of 23% per year. When the model carries a "neutral" reading, the S&P has returned over 11% per year. But when the model is rated "negative," stocks fall by more than -13% a year on average.