Correction Over

The correction of the last few weeks - or downturn, or stumble, or whatever you want to call it - is now officially over. On February 22d the S&P 500 reached an intraday high of 1461.57. From there it was downhill and the bottom really fell out on February 27th, when the S&P 500 fell -3.5%%. Weakness continued through a low of 1363.98 on March 14th. Over the last month the index climbed back and closed today only slightly below its high of 1468.62, comfortably above the February 22d peak.

The rally today was sparked mainly by some merger news; Student Loan Marketing Corp (SLM), affectionately known to generations of traders as "Sallie Mae," is being taken over by a private equity consortium in a $25 billion deal. So far in 2007, buyout activity in the U.S. has totalled $684 billion - 46% above the same point last year. Why is this important? It means that smart people clearly think stocks are fairly valued, if not undervalued, at current levels. There is room for more upside. Strong quarterly reports from several financial stocks confirmed the new sense of optimism.

Less noticed were reports from Tokyo about another Alan Greenspan speech. You may recall he helped set off the recent weakness by mentioning the possibility of a recession. According to persons who were present, Greenspan told his Asian audience that even if the U.S. does have a recession, the rest of the global economy is strong enough to keep the damage minor.

Of course, another correction phase could begin now that this one is over. Today's gain brings both the broad market indexes and many key sectors into overbought conditions. A few days of sideways movement would set up the market for another leg higher. Likewise, a failure from here would be very bearish.