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Suddenly, Dow 17,000 is in sight

Not since October 2011 have U.S. equities climbed more than 1 percent for three consecutive sessions, but that happened on Wednesday. And it was the Dow Jones industrial index's first-ever run of three straight 200-plus point gains.

Three dynamics are in play in this torrid rebound. First are hopes of a production cut agreement by OPEC and Russia. Second are hopes of a delay in any new rate hikes from the Federal Reserve.

And third has been a classic "dash for trash" -- a squeeze on short sellers as the most hated stocks over the past month have been leading the move higher. Short sellers sell stocks they've borrowed on a bet that the stocks' prices will fall in the future, and they get squeezed when those stocks' value increases instead, forcing them to buy shares to avoid further losses, and thereby pushing prices up further.

By all indications the upswell should continue as market breadth, or the number of stocks participating to the upside, returns to levels not seen since October. Next stop: Dow 17,000.

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Regarding the first catalyst: Iranian oil minister Bijan Zanganeh met with officials from Qatar, Venezuela, and Iraq in Tehran on Wednesday to discuss a proposal to freeze production at January levels. He noted this was a first step and that more need to follow. But the mere fact that a dialogue has opened is seen as a hugely positive step toward addressing crude oil's deep oversupply problem.

Regarding the second catalyst: The release of the January Federal Reserve meeting minutes highlighted uncertainty among officials about the consequences of recent financial market volatility, including the possible tightening of financial conditions, the risk to foreign economies and the drag on inflation. The takeaway is that the Fed seems to be warming to the idea of a "wait-and-see" approach to allow capital markets and investors to fully absorb the December rate hike -- the first since 2006.

Regarding the third catalyst: The situation was primed for panicked short covering by market bears given deep oversold conditions, defensive positioning and bombed-out sentiment. In a note to clients, Goldman Sachs analysts noted that Tuesday was the largest short-covering day since October 2014 in percentage terms. And the past three days have seen the largest short-squeeze since December 2008.

The tip of the spear on this front has been materials stocks -- steelmakers, miners and the like -- that have seen their share prices nuked on a combination of global economic growth fears and the revenue drag from lower commodity prices. Over the last few weeks, gold mining stocks have been hot because they also had the benefit of rallying on European banking woes and renewed interest in negative interest rates in Europe and Japan.

But now, the net is widening to include industrial materials as well. The Metals & Mining SPDR (XME) looks ready to push up and over the $16 level first tested back in September.

After seven rough months in the stock market, investors are set to enjoy a reprieve from the selling. However, a run at Dow 18,000 and beyond -- breaking a level of resistance going back to late 2014 -- will require a resumption of corporate earnings growth, an increase in oil prices, a rebound in China's economy and reversals in many other recent areas of concerns.

Until those things happen, treat this as a short-term rebound.

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