At 3:00 p.m. ET yesterday, things were looking ominous for the equity market.  It had been locked in a nearly two-hour long slide that resulted in a 1.3% swing between the intraday high and the intraday low and left the S&P 500 at 1258.  An hour later, things looked, well, less ominous.

A broad-based buying effort in the final hour turned the tide.  By the closing bell, the S&P 500 stood at 1267, up 0.2% for the day (insert your own sigh of relief sound hear).

It was a notable rally effort for a few reasons.  First, it was a rally into the close, which ran counter to the default position of late to sell into the close.  The turnabout could be seen as a pivot point for sentiment and help precipitate a short-covering trade that boosts the market in the near term.  Secondly, it came ahead of a highly-anticipated meeting today between German Chancellor Angela Merkel and French President Nicolas Sarkozy.

How did that meeting go?  In a word:  Opa!

According to press reports, Frau Merkel and Monsieur Sarkozy resolved that a new deal for a second bailout for Greece should be reached quickly and that the involvement of private bondholders should be voluntary.

Greece of course still needs to pass its new austerity budget, but for the time being, the acquiescence of Germany and France -- and Germany in particular, which had not been keen before on the voluntary involvement of private bondholders -- has created a ray of hope that Greece will be able to avoid a debt default that could have systemic implications for European banks.

With respect to Greece, it put a little wind in the market's sails today, too, as Prime Minister Papandreou tapped socialist party member and current Defense Minister, Evangelos Venizelos, to be the new finance minister.  He will take the place of George Papaconstantinou who instead will now be the environment minister.

We find it ironic that Mr. Papaconstantinou didn't actually get pink-slipped in the reorganization; rather, he simply got a new post in the same organization, and will probably be making the same money as before with the same benefits.  Undoubtedly, his pension is secure. 

We digress.

The market isn't concerned with ironic developments.  It is concerned with financial developments and the Merkel-Sarkozy tete-a-tete has market participants thinking the financial world is looking a little less risky than it did earlier this week. 

That is not say there is no longer risk in this situation.  There is, especially since the Greek prime minster still faces a vote of confidence and knowing the Greek parliament has yet to agree to the new austerity measures.

As noted in the past, however, the thought that a worst-case scenario is moving toward to a less bad scenario qualifies as a positive for a short-term oversold market.    

The S&P futures are up 12 points on this quarterly options expiration day, otherwise known as a quadruple witch with the expiration of stock options, index options, index futures, and single stock futures.  Currently, they are 1.0% above fair value, so the ouzo should be flowing at the open.

Shortly after the start of trading, the University of Michigan Consumer Sentiment survey for June (Briefing.com consensus 73.5; prior 74.3) will be released at 9:55 a.m. ET and it will be followed by the Leading Indicators Index (Briefing.com consensus +0.4%; prior -0.3%) at 10:00 a.m. ET.

The better-than-expected building permits data seen yesterday raises the potential for an upward surprise with Leading Indicators, but the sentiment survey is apt to draw the most attention between the two reports.  A positive surprise there should help make for a comforting end to a nerve-wracking week.

--Patrick J. O'Hare, Briefing.com

Patrick J. O'Hare is the Chief Market Analyst for Briefing Research, Briefing.com's institutional research service. To request a free trial please email researchsales@briefing.com.