The U.S. stock market is having a euphoric rally on Monday on a promise by German Chancellor Angela Merkel and French President Nicholas Sarkozy to unveil a Eurozone bailout plan by month's end.
The S&P 500 Index is not far from 1,200, surging 32.39 points, or 2.80 percent, to trade at 1,187.85 at 12:58 p.m. ET. The Dow Jones Industrial rallied 271.93 points, or 2.45 percent, to trade at 11,375.05. The Nasdaq Composite rose 2.93 percent.
The S&P 500, however, may not be worth much more than 1,187.85, according to Jim Iuorio, a floor broker and trader with TJM Institutional Services.
Iuorio told CNBC TV that traders do not actually think the “Merkozy” promise will solve the European debt crisis.
They just see it as a temporary solution that stops the bleeding. By the time the Europe debt crisis resurfaces 2 to 4 months from now, traders will have ridden the bounce long enough to erase some of their losses on their accounts, said Iuorio.
Over the last few months, the S&P 500 declined from the May 2 high of 1,371 to as low as 1,075, which undoubtedly hurt the accounts of many traders.
He said when the S&P 500 reaches about 1,200, it is probably time to sell.
The temporary nature of the Eurozone calm aside, many of the U.S.-related bullish fundamental arguments for stocks also cease to make sense with the S&P 500 at 1,200. Among them are the strength in U.S. consumers, U.S. companies, and order books, said Iuorio.
“Things are better than we thought they were a week ago. But they're not great and not getting great,” he said. A week ago (Oct. 3), the S&P 500 closed at 1,099.
In the current environment, Iourio recommends defensive stocks that pay dividends.