Counter-trend Rally possible, but how far will it take the markets?

Every bear market move to the downside has a bear market rally. Some opine that the 83% upside since the March, 2009 low had been nothing but a bear market counter-trend rally and now the original downtrend is continuing. I tend to agree with this opinion.

So it's not a surprise that we might get a minor counter-trend rally after the recent declines. But it's going to need to be more powerful to reverse the triple decline of the major moving averages.

As we can see, there's a possibility of the S&P 500 moving back up to 1080 before it comes into maximum resistance at the 20, 50 and 200 Day MA. But that last move downward left a bunch of people who had been buying the S&P for 3 weeks and were stuck in their positions after that one day plummet. Now they are hoping for a rally to bail them out, so there's expectation of major selling at the 1060 range.

S&P 500 Daily

The Russell 2000 is also coming into a similar band of resistance. It's also lined up nicely with it's downward channel, so if it manages to move higher tomorrow, it will break that down channel and rally up to 620.

Russell 2000 daily

Ron at Chart Pattern Trader has some good comments on using Moving Averages, especially when they are all in alignment in the same direction.

MA alignments

Now.. what's amazing is that we had lousy data today, but the market fell, then rallied to close positive. Some are taking that as a sign of selling fatigue and that's a distinct possibility. It could also be that a short squeeze was forced by jacking the futures, in order to give the longs a final chance to distribute at higher prices before the final plunge to lower lows (breaking the neckline of the Head & Shoulders formation that I've been discussing and which seems to be gaining acceptance by market technicians.

Tomorrow and Friday will be telling indications as we get the jobs report and on Friday, revised GDP. If jobs data is better than last week's 500K new unemployment filings, it might provide a short-term impetus for continuing the rally. Obviously many are hoping that last week was an aberration caused by Census workers being laid off. If tomorrow proves otherwise, it could create that impetus that takes us below the neckline.

What I'm wondering is whether these extended unemployment benefits which were passed will require folks to re-apply, therefore adding to unemployment claims. I believe that's the case and that could drive unemployment numbers up substantially as folks who had fallen off the UE rolls, reenter and get counted along with the newly unemployed.

In sum, it's about jobs, jobs, jobs.. which equal consumer demand, which impacts economic performance and housing. And it's about preserving job skills, which decline during long periods of playing Xbox and thumb twiddling.

And along those lines, here's something I read that I feel justifies being re-posted here:

Uncle Scam

Anyone reading that has to be amazed that we have much economic and jobs growth at all.

Best of luck through the remainder of this week!!

Scrutinizer