Bullish 'Alert'

Stocks are poised to open sharply higher following Fed Chairman Ben Bernnake's speech last night in which he said he will remain "alert" to the need to alleviate the credit crunch, which has turned out to be worse and has dragged on longer than he initially feared.

Also providing a boost is news that Treasury Secretary Henry Paulson is negotiating an agreement with banks to stem a surge in foreclosures by fixing interest rates on loans to subprime borrowers.

And finally, the fact that oil has slipped back under $90 a barrel can only be viewed as a positive.

All this adds up to the S&P 500 index poised to make a run at the crucial 1480-1490 level today. I would think the first attempt would be met with a high level of selling; this level is not only used by technical traders as obvious place on the chart to try entering some shorts, it's also probably represents a break-even point for many investors who were buyers at that level back in early October, when it acted as support on multiple occasions. With the year drawing to close, people might be satisfied to avoid losses and simply get investment money back.

Yesterday saw the VIX slip below 24 for the first time in three weeks, and I expect it to drop again today. A close below 22 will break the uptrend and be a bullish sign, but as I mentioned, this gauge is a very lagging indicator for catching a market turn, and by time you've gotten confirmation, you've usually has missed a good portion of the initial move. The VIX works much better at marking bottoms when it puts in large one-day spike coupled with a large selloff in the stock market.

Unfortunately, trading in the stock market has been characterized by alternating days of large rallies and steep declines, causing the VIX to be a general trend higher and making it difficult to point to a single day of panic or a washout that usually indicates a bottom.

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Steven Smith writes regularly for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He was a seatholding member of the Chicago Board of Trade (CBOT) and the Chicago Board Options Exchange (CBOE) from May 1989 to August 1995. During that six-year period, he traded multiple markets for his own personal account and acted as an executing broker for third-party accounts. He appreciates your feedback; click here to send him an email.

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