Even though the European debt situation remains, the perception of its overall impact on the world’s economies changed yesterday. That shift was caused by a promise from China not to sell European debt securities, and its effect on U.S. markets was positive, driving the market to its second best day of the year.

As might be expected, the strongest sector yesterday was the financials, which gained 4.5%. The Dow Jones Industrial Average jumped 2.9%, closing above 10,000 for the first time in over a week, and the S&P 500 closed above the 1,090 level.

Some minor economic news had little impact on stocks. Initial jobless claims for the week ending May 22, totaled 460,000, which is slightly above the 455,000 expected. And the second estimate for Q1 GDP showed that the economy expanded at a rate of 3%, down from an expected increase of 3.2%.

The euro had one of its best days of the year, up 1.5% versus the U.S. dollar.

At the close, the Dow jumped 285 points to 10,259, the S&P 500 rose 35 points to 1,103, and the Nasdaq gained 82 points to 2,278.

The NYSE traded 1.4 billion shares with advancers ahead of decliners by almost 9-to-1. On the Nasdaq, advancers led by 7-to-1 and 682 million shares were traded.

Crude oil for July delivery was higher for the second day, up $3.04 to $74.55 a barrel, and the Energy Select Sector SPDR (NYSE: XLE) gained $2.19, closing at $54.06.  Gold (June contract) fell $1.50 to $1,211.90 an ounce, and the PHLX Gold/Silver Sector Index (NASDAQ: XAU) gained 4.86 points, closing at 175.6.

What the Markets Are Saying

With volatility as measured by the CBOE Volatility Index (VIX) still historically high, traders are delighting in the broad daily swings. But those who were short going into yesterday’s opening, expecting the major indices to again test the lows, were deeply disappointed with the huge gap that opened trading and caused many of the shorts to run for cover.

But the pattern of lower volume on days down and higher volume on days up persisted yesterday. However, 1.4 billion shares were enough to pop the Dow Industrials to within 20 points of their 200-day moving average, and the S&P 500 to just over 2 points from that important line of resistance.

Just above the 200-day moving averages, another significant resistance zone clouds the likelihood of a further major advance. That zone for the Dow is at 10,250 to 10,550, and for the S&P 500 is at 1,115 to 1,150, with the 20-day moving average smack in the middle at 1,130. But perhaps the two major indices will have little trouble with moving averages. At least the Nasdaq didn’t, as yesterday it sprinted through its 200-day on an opening gap and headed into the next resistance at 2,270 to 2,320.

Sentiment took a positive turn in the last couple of days. With fear spreading as quickly as you can say the word “contagion,” it was no surprise to have the Advisor Sentiment Index from Investors Intelligence drop to only 40% bulls from 56% at the end of April, and 39.3% from 43.8% just a week ago. This is a “contra-indicator” meaning that the reading is bullish when the indicator for bulls weakens. Backing up that trend the AAII Sentiment Survey, also a contra-indicator, which saw its bulls fall to 29.82% from 41.30% last week, while bears jumped to 50.88% versus 33.79%.

Even though stocks have held above their five-month support line, prompting some to call this a “successful test” of that crucial support, there is little evidence to indicate that the old bull has awakened from his spring slumber. More time and more upside volume are needed to poke prices through the considerable resistance hovering just above yesterday’s closing prices.

Today’s Trading Landscape

There are no significant earnings to be reported tomorrow.

Economic reports due: personal income and outlays (the consensus expects 0.5% for personal income, 0.2% for consumer spending), Chicago PMI (the consensus expects 62), and consumer sentiment (the consensus expects 73.3).